Euro zone government bond yields steadied on Monday from a sharp selloff at the end of last week, sparked by dovish comments from the U.S. Federal Reserve chief, strong U.S. jobs data and hopes for a resolution to the U.S.-China trade spat.
Having fallen sharply on concerns about the outlook for the world economy, bond yields in Europe and the United States jumped on Friday after data showed stronger-than-expected U.S. jobs growth in December and Fed chief Jerome Powell said the U.S. central bank will be patient and sensitive to market risks.
A rebound in oil prices as well as a firmer tone to stock markets ahead of a trade talks between Chinese and U.S. officials kept bond markets in a defensive mood.
In Germany, the euro zone's benchmark bond issuer, 10-year bond yields were trading around 0.21 percent early on Monday -- little changed on the day but up from more than two-year lows close to 0.15 percent hit last week.
"From a very short-term perspective, it's not all complete doom and gloom but at around 20 basis points, the Bund yield levels suggest there is a lot of scepticism about the economic outlook and we have had weaker data from Germany again today," said DZ Bank rates strategist Christian Lenk.
"Markets are trying to work out if this is the start of recession."
Data showing German industrial orders fell more than expected in November highlighted slowing momentum in Europe's powerhouse economy.
The market's worst fears about the global economic outlook, which have led to aggressive repricing of the rates outlook, nevertheless appear to have subsided.
Money market futures in the euro zone pointed to a roughly 50 percent chance of 10 basis point rate hike by the European Central Bank by the end of this year, up from less than a 30 percent chance last week.
Focus was also shifting to this week's hefty government bond supply. The Netherlands, Austria, Germany, France and Italy are all expected to sell bonds in what is expected to be one of the busiest auction weeks of the year.
