LONDON: German Bund yields hit a two-week low on Friday and were set for their biggest weekly fall since late January against a backdrop of general risk aversion and renewed concerns about global growth.
Having risen to almost 0.31 percent just a week ago, yields on top-rated 10-year German bonds have halved, moving back within sight of one-year lows hit in April and leaving behind fears of a repeat of the brutal sell-off that took place a year ago.
Analysts put the bullish sentiment towards safe-haven German debt down to a number of factors: weak Chinese data earlier in the week, lower growth and inflation forecasts from the European Commission, a soft tone in equity and oil markets as well as nervousness ahead of risk events such as June's election re-run in Spain and the UK referendum on EU membership.
European stock markets were broadly lower on Friday, with the pan-European FTSEurofirst 300 index on track for its second straight week of losses.
"If we have a deeper risk off mood in equities we could easily see Bund yields dive below the lows seen last year at 0.05 percent," said ING's senior rates strategist Martin Van Vliet.
Sergio Capaldi, fixed income strategist at Intesa Sanpaolo, said he remained bullish on core government bond markets in the euro zone given the subdued outlook for inflation.
Bund yields were down 1 basis point at 0.16 percent , having dipped to 0.15 percent -- their lowest level in just over two weeks.
Most other euro zone bond yields were 1-4 basis points lower, with peripheral bond markets on firmer ground after a sharp sell-off on Thursday.
Closely-watched US jobs data, due later on Friday, infused some caution into markets.
Nonfarm payrolls probably increased by 202,000 last month after growing by 215,000 in March, according to a Reuters survey of economists.
The data is being watched for signs of strength in the US economy that could encourage Federal Reserve policy makers to push for another interest rate rise sooner rather than later.
"The next few weeks will be dominated by a stream of macro data as investors ponder whether the slowdown seen at the end of last year and start of 2016 is temporary or permanent and that is important for the bond market," said Intesa Sanpaolo's Capaldi.
Moody's ratings agency is due to report on Portugal's Ba1 rating later on Friday, with Commerzbank analysts saying the stable outlook could be at risk.
There was relief for Lisbon last week after ratings agency DBRS maintained the country's only investment grade rating, ensuring Portuguese bonds remain eligible for European Central Bank bond buying.
Elsewhere, Italy sold 1.91 billion euros ($2.2 billion) of an Aug. 1, 2034 BTP bond at an exchange auction on Friday.
The Italian Treasury swapped the long-term bond with five bonds maturing in 2017 and 2018 which it repurchased for a total of 2.56 billion euros.
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