LONDON: Euro zone government bond yields pulled away from record lows on Monday as rallying equities dented the appeal of fixed income markets, even as weak economic data kept the onus on central banks to provide stimulus to support global growth.
World shares traded at one-year highs, while European stocks rose to a seven-week peak on the back of firmer healthcare stocks. Economic data from around the world meanwhile continued to support the case for further monetary stimulus, with Japan's economy expanding at an annualised rate of 0.2 percent in the second quarter and at a much slower pace than forecast.
Manufacturing conditions in the New York region meanwhile weakened in August, data from the New York Federal Reserve showed. Still, investors were reluctant to pushed bond yields lower given a huge rally in fixed income markets since Britain's vote to leave the European Union in June, analysts said.
"We've had a decent rally in fixed income post Brexit, so there is not much more further we can go until we see some more signals from the ECB on monetary policy," said Owen Callan, an analyst at Cantor Fitzgerald.
"Equity markets are also at new highs so that's weighing on bonds in a thin summer market," he said. Germany's 10-year Bund yield rose 3 basis points to minus 0.13 percent, off record lows hit last month at around minus 0.2 percent.
Spain's 10-year bond yield, which hit a record low at around 0.92 percent last week, was at 0.95 percent and steady on the day.
Spanish yields have fallen to record lows in the past week on signs of progress on ending a near eight-month political deadlock.
Acting Prime Minister Mariano Rajoy's People's Party is due to vote on Wednesday on whether to accept a reform pact from centrist party Ciudadanos.
A vote in favour would be a step closer to forming a government. A rally in risk appetite helped Portuguese bond yields reverse early rises, with focus turning to the country's ratings outlook.
Portugal faces a review by Fitch Ratings later this week, which could put the spotlight on its rating and eligibility for the European Central Bank's quantitative easing programme.
"Fitch should reiterate its take on Portugal. However, hawkish comments may raise concerns about DBRS's stance on which QE-eligibility rests," Commerzbank strategists said in a note.
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