Germany's benchmark 10-year bond yield moved back towards zero percent on Monday after a surprise rise in business sentiment took the edge off market fears about a dire economic outlook. Poor manufacturing activity data on Friday from Europe's powerhouse economy had pushed long-dated German bond yields below zero percent in the biggest one-day fall since the start of January.
But on Monday euro zone bond yields, which had opened higher, rose further after the March Ifo business climate index rose to 99.6 from 98.7 in February and compared with expectations for a reading of 98.5. Germany's 10-year bond yield briefly moved back into positive territory, reaching a high of 0.004 percent. It was last up 1.5 basis points on the day at minus 0.009 percent, off Friday's almost 2 1/2-year low of minus 0.03 percent.
Other core euro zone bond yields were also lifted off recent lows. "It (the Ifo) is a bit of a reprieve after the significant miss from PMI on Friday and it confirms that it is the manufacturing side of Europe or Germany which is really weighing on sentiment," said Christoph Rieger, rates strategist at Commerzbank. "It confirms it is China or the general export situation which is at the heart of the problems."
Heightened concern about the global growth outlook has pushed German Bund yields down almost 20 bps this month, in line with steep falls in the yields of other major bond markets.
Friday's German manufacturing activity survey showed a contraction for the third straight month. Preliminary measures of US manufacturing and services activity for March showed both grew at a slower pace than in February.
After Friday's US numbers, the gap between yields on three-month US Treasury bills and 10-year notes fell below zero for the first time since 2007.
That gap moved back into positive territory after the German Ifo survey.
An inverted yield curve is widely considered a leading indicator of recession, and that spread is the Federal Reserve's preferred measure of the yield curve.
Heightened uncertainty over Brexit and world trade tensions have also bolstered demand for safe-haven bonds.
On Monday, Japanese 10-year government bond yields slumped to minus 9.2 basis points, the lowest since September 2016. Australian 10-year year yields plunged to a record low of 1.754 percent.