* Euro zone bonds extend Fed-induced sell-off
* Ten-year German yield hits highest since April 2012
* Bunds may recover as periphery yields rise-analyst
By Marius Zaharia
LONDON, June 24 (Reuters) - Bond yields rose across the euro zone on Monday, with those on 10-year German Bunds hitting 14-month highs, as the prospect of the Federal Reserve winding down monetary stimulus took a further toll on battered debt markets.
Bund yields were expected to rise further in the coming days, but weakness in the euro zone economy and rising borrowing costs in the bloc’s peripheral countries could soon revive investor demand for the low-risk German paper, analysts said.
The Federal Reserve signalled last week it would slow the pace of bond purchases with a view to ending it in 2014, triggering a global sell-off in bonds, stocks and commodities.
The Bank for International Settlements echoed the theme on Sunday, saying central banks should not let fear of disrupting markets delay timely withdrawal of cheap money.
Official news reports in China over the weekend suggested Beijing will not change its tightening policy added to investor anxiety.
Bund futures hit a low of 140.16, down 123 ticks on the day and their lowest since October 2012. German 10-year yields rose 10 basis points at 1.82 percent, their highest since April 2012.
“There is some overshooting in the market and yields could come back towards 1.5 percent over the summer months. It doesn’t make sense that yields are so high when the economic conditions are so weak,” BNP Paribas rate strategist Patrick Jacq said.
Commerzbank strategists said in a note Bund futures could fall to the 2012 low of 138.41 and, longer-term, towards the 132.82-132.99 area defined by the 50 percent retracement of the 2011-2013 rally and lows hit at the end of 2011.
But, Norbert Wuthe, rate strategist at Bayerische Landesbank in Munich, said Bunds could soon recover as the rise in peripheral yields, along with economic and political weakness, should renew safe-haven bids for German debt.
Italy said it planned to delay raising value added tax by at least three months. In Greece, one party pulled out of the government last week, leaving Prime Minister Antonis Samaras with a wafer-thin majority in parliament.
Policymakers failed on Saturday to take a step closer to a banking union, which is seen as vital to breaking the loop between banks and indebted sovereigns.
“There’s a good chance of a Bunds recovery,” Wuthe said.
Italian 10-year yields were 20 bps higher on the day at 4.78 percent, while equivalent Spanish yields rose 14 bps to 5.02 percent.