LONDON: Germany's benchmark 10-year Bund yield fell back after hitting a two-week high on Thursday, with investors unconvinced by the message from the US Federal Reserve's latest minutes that interest rates might rise next month.
Fed officials said they felt the US economy could be ready for another rate increase in June, according to the minutes from the April meeting, which took markets by surprise and initially sent Germany's 10-year bond yield up as much as 4 basis points to a two-week high of about 0.20 percent.
The minutes followed hawkish comments from Fed policymakers this week, as well as data showing that US inflation rose at the fastest pace for more than three years in April.
But many investors were not prepared to accept that a June rate hike was really on the cards.
"The Fed wanted to send a message to the markets not to forget about them, and that every meeting potentially could be live, contigent upon the data," Brandywine Global Investment portfolio manager, Jack McIntyre, said.
"It spooked the markets a little bit, but I don't view this as a trend change in bonds," he said.
Minutes from the European Central Bank, which showed policymakers agreed in April that they need to defend the bank against a growing number of critics of its ultra-loose monetary policy, had little impact on bond markets.
Fed fund futures had put the probability of a June US interest rate hike at 34 percent, compared with 19 percent before the Fed minutes were released and less than 1 percent a month ago, according to CME group's FedWatch. By 1620 GMT that had fallen to 26 percent.
Germany's benchmark 10-year Bund yield ended the trading day flat at 0.17 percent. Other euro zone bond yields were also broadly steady.
"High-profile data such as the next payrolls numbers could boost expectations for a hike, but on the other hand, uncertainty in the world or weaker data could delay (it)," Commerzbank strategist, Rainer Guntermann, said.
Analysts said a fall in oil prices and concern about an EgyptAir plane that went missing en route from Paris to Cairo might have lent the safe-haven German market some support.
Short-dated US Treasury yields rose sharply to their highest in two months on Wednesday, setting the tone for European markets, but they too slipped back on Thursday.
During the session, Spain sold 2.5 billion euros of bonds due 2019, 2024 and 2030. France sold about 6.2 billion of medium-term bonds.
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