Core euro area yields rose to six-week highs on Friday, as hopes of trade talks and receding emerging market concerns bolstered risk appetite, a day after the European Central Bank confirmed that its monthly asset purchases would be halved come October.
Yields rose across the developed world, with 10-year US yields briefly hitting the key 3 percent mark - the first time since Aug. 2 - on solid economic data and conviction the Federal Reserve would raise interest rates twice more in 2018.
Demand for safe-haven bonds such as Germany's had already been dented this week by hopes for a new round of trade talks between the United States and China and after a decisive interest rate hike in Turkey on Thursday bought some calm to emerging markets.
Analysts said Thursday's ECB meeting was not as dovish as some investors had anticipated, with growth forecasts trimmed rather than cut sharply while the bank also noted a pick-up in wage pressures.
The ECB lowered its growth projections by 0.1 percent for the next two years. It also cut its underlying inflation forecasts for next year and 2020, while maintaining its overall price growth forecasts.
Euro zone labour costs rose at their steepest rate in almost six years in the second quarter of 2018, data on Friday showed.
Germany's 10-year government bond, the benchmark for the region, reached a six-week high of 0.46 percent before receding slightly to 0.45 percent as trading wound down.
Most other 10-year euro zone bond yields also reached 6-week highs and were up between 2 and 4 basis points on the day.
"The ECB staff forecasts showed only a trimming of growth expectations, not the downgrade of risks to the outlook that the market had been told to expect," said Peter Chatwell, head of rates strategy at Mizuho.
"Our interpretation of the forecasts is that they tell a story of a euro area economy which is still growing comfortably and where headline inflation is likely to remain close enough to target for the central bank to be hiking rates in September 2019."
Money market pricing suggests the ECB is more likely to raise rates in October next year and almost certainly will have delivered one 10 basis point hike by the end of 2019.
The rise in euro are yields also included Italy, where yields moved in the opposite direction to those on higher-rated bonds recently with worries about Rome's spending plans hurting Italian debt but lifting German bonds.
DZ Bank strategist Andy Cossor said signs of progress on US-China trade talks and Turkey's rate hike helped explain the slightly bearish tone in major bond markets.
"Risk factors that have been worrying us have became less worrying in the last 24 hours," Cossor said.
US 10-year Treasury yields rose across the curve following retail sales data and after two Fed policymakers Charles Evans and Lael Brainard - both typically viewed as doves - indicated the bank had room to raise rates.
Portugal was also in focus ahead of a S&P ratings review. The review comes a year after it became the first of the big three credit agencies to lift Portugal back to investment grade.
Commerzbank said another upgrade looked premature, though a positive outlook change was possible.
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