A survey earlier in the day showed the mood among German investors darkened more than expected in July, raising pressure on the European central bank to ease monetary policy as early as next week.
That pushed 10-year German debt yields to a low of minus 0.308pc, though still well off the minus 0.40pc record hit earlier this month.
The yield touched a session high around minus 0.282pc after the US data but eased back to minus 0.29pc by 1520 GMT.
The ZEW institute said its monthly survey showed economic sentiment among investors fell to -24.5 from -21.1 in June. Economists had expected a less severe drop to -22.3.
"The ZEW data is not very encouraging and market expectations of a 10 basis point depo rate cut next week have increased as a result," said Kenneth Broux, a strategist at Societe Generale in London.
Money markets raised expectations of a 10 basis point rate cut by the European Central Bank at a policy meeting next week to 36pc from 30pc last week.
US data in recent days, from jobs to manufacturing to retail, has painted a slightly more upbeat picture of the economy but the same is not true of the euro zone despite a stronger-than-expected industrial output print last week.
As a result, German yields have come off the 3-1/2-week highs hit last week. Ten-year Bund yields fell five basis points on Monday, their biggest one-day fall since mid-June when ECB president Mario Draghi flagged a return to policy easing.
Goldman Sachs analysts told clients that most leading indicators pointed to continued weakness in Germany, the leading euro zone economy.
"We are therefore looking for a more broad-based and sustained improvement in the data flow to conclude that growth has troughed in Germany," they added.
Adding to the uncertainty is a vote to name Germany's Ursula von der Leyen president of the European Commission. Her candidacy is being opposed by European Union socialist lawmakers.
"A rejection would definitely be a setback for the working climate in European institutions and markets will be firmly focused on the outcome for the vote," said Daniel Lenz, a rates strategist at DZ Bank in Frankfurt.
ITALY
The renewed fall in German yields has sent investors into Italy and other southern European countries where higher yields are on offer. Italian 10-year yields hurtled towards a near three-year low hit in early-July, falling three bps on the day to $1.61pc
Italian yields are enjoying their sixth straight week of declines, having fallen some 70 bps since Draghi's June 18 speech. A break below 1.576pc would take 10-year yields to the lowest since October 2016.
"With so many government bonds offering negative yields...it is not difficult to see why the 1.6pc yield of 10-year (Italian bonds) might look attractive to investors," Capital Economics told clients.
Greece meanwhile was selling a seven-year bond which is being priced to yield 1.9pc. The issue had attracted more than 12.5 billion euros in offers, according to IFR, Refinitiv's capital markets news service.
In an illustration of how far borrowing costs have fallen, Greek yields hit highs around 4.7pc last year.
"Good demand for Greek debt should further fuel a rally in peripheral bonds," DZ Bank's Lenz said.
Spanish and Portuguese yields also slipped around 2 bps .