German yields last week touched 3-1/2-week highs and endured their worst week since February 2018 after industrial output and inflation data in Europe and the United States respectively suggested pessimism on economic growth might be overdone.

Encouraging Chinese data too showed the world's second-biggest economy may be starting to stabilise.

"(Ten-year Bund) yields went to the highest level since Sintra and the data calendar isn't as negative as people thought and that was enough to trigger some interest," said Michael Leister, a rates strategist at Commerzbank in Frankfurt.

He was referring to the speech in Portugal by ECB chief Mario Draghi on June 18 where he flagged the bank was preparing to embark again on monetary stimulus.

The Bund yield dropped five basis points to minus -0.299pc , having risen as high as 0.224pc on Friday. But it remains some 12 bps off record lows hit earlier this month.

Some demand for safe-haven debt was also spurred by weaker stock markets, with Wall Street turning tail after opening at record highs.

French, Spanish and Portuguese yields all slipped 5-6 bps but Italian debt was the biggest winner, with 10-year yields down almost 10 basis points to 1.64pc and its yield spread over Germany narrowing to just 192 bps, the tightest since May 2018.

Sentiment towards Italian bonds has improved this month after Rome avoided EU sanctions over its fiscal position and as expectations grew for a return to ECB asset purchases.

Monday's gains were also spurred by ratings agency DBRS' decision to keep Italy's sovereign credit score at BBB (high).

"There is some fundamental good news on Italy but a big part of the rally has been driven by the search for yield within European bond markets and anticipation of rate cuts," said David Riley, chief investment strategist at BlueBay, who has been bullish on Italian debt for a while.

"Yields are less attractive than they were but the pool of negative-yielding debt will push investors into Italy and keep squeezing yields lower."

Commerzbank's Leister agreed, predicting 10-year yields to fall to 1.5pc in coming weeks.

Greece too was in focus after it mandated banks to sell seven-year bonds

Greek five-year yields rose three bps on the news and seven-year yields rose 4.5 bps.

However, a syndicated bond deal from Greece has been widely anticipated following elections this month. Greek debt has been among the best performing this year on the promise of more ECB stimulus and growing confidence in Greece's own recovery.