MILAN: Euro zone bond yields fell as pandemic fears continued to weigh on risk sentiment on Thursday, while US Treasury yields were unchanged ahead of an auction of seven-year notes.

The number of new confirmed coronavirus cases in Germany rose the most since Jan. 9, while the number of people with COVID-19 in French intensive care units set a high for 2021.

US Treasury yields were flat in London trading after dipping on Wednesday, when the Treasury saw average demand at an auction of five-year notes.

Markets were focused on demand at the auctions after weak interest for a seven-year auction last month sparked a sell-off across the Treasury curve.

Germany's 10-year government bond yield was down 1.5 basis points, after hitting its lowest level since mid-February at -0.376%.

"10y Bund yields are running into resistance below -0.37% but European government bonds continue to stabilise and decouple from renewed US headwinds," Commerzbank analysts told clients.

The macro backdrop remained mixed in Europe, with stronger-than-expected PMI data released on Wednesday tempering the rally in the bond market.

"The positive PMIs were eventually outweighed by concerns over still rising infection rates. Of course, the ECB buying more via the pandemic emergency programme (PEPP) in the background should have helped," ING analysts said.

The European Central Bank increased bond purchases by nearly half last week, ramping up its stimulus efforts to keep a lid on borrowing costs and convince sceptical investors it would do what it took to restrain bond yields.

"With the ECB accelerating the pace of its bond purchases and concerns about new restrictions, we think that a significant increase in European government bonds yields is unlikely in the near term," Unicredit analysts said.

They said they preferred the "short end and the belly of the curve" as they offer a better hedge should the upward trend in yields resume, while spillover from the US Treasury market "is less likely at shorter tenors."

Italy's 10-year government bond yield was down 1 basis point at 0.585%.

Italy's new short-term BTP fetched a yield of -0.39% at its debut auction on Thursday, at which the Treasury sold 4 billion euros ($4.7 billion) worth of bills.

The ECB and the Federal Reserve have several speakers lined up on Thursday.

"While Fed speakers are unlikely to venture far from the already well-known narrative, we think the ECB will use every opportunity - via action or word - to drive a wedge between US developments and the euro zone," ING analysts said.