LONDON: Europe's benchmark bond yield edged back below zero on Thursday as investors looked towards minutes of the European Central Bank's last meeting to soothe fears over the prospect of it eventually winding down its bond-buying stimulus programme.
Euro zone yields, including the bloc's top-rated German debt which is usually seen as a safehaven in times of stress, have shot higher this week after reports that the ECB might reducing the scale of its quantitative easing scheme.
Despite a spokesman for the ECB saying the central bank had not discussed this so-called 'tapering', the mere mention of the word has rattled markets already questioning whether central banks can win the battle to boost growth and inflation.
Analysts said this has put sharper focus on ECB minutes due around 1130 GMT, which could divert attention to further tweaks to the programme after the governing council set out a review to ensure its smooth implementation.
"The minutes to be released today may already shed some light on the possible tweaks being considered," ING's global head of debt and rates strategy, Padhraic Garvey, said.
Germany's 10-year bond yield edged down 1 basis point to minus 0.01 percent on Thursday, having touched zero on Wednesday after a 5 bps surge, according to Reuters data.
Yields touched minus 0.16 percent less than a week ago, encroaching on a minus 0.20 percent record low hit in July.
Other euro zone yields were a touch lower on Thursday, steadying after some racked up over 10 bps of rises on Wednesday.
The prospect of a resolution to the crisis swirling around Germany's biggest lender Deutsche Bank, which faces a chunky fine from the U.S. Department of Justice viewed as a major drain on its capital, was also seen settling investor nerves.
Questions over the health of Deutsche Bank loomed large over the start of the International Monetary Fund and World Bank annual meetings in Washington, as IMF officials expressed confidence that German and European authorities were working to ensure stability.
Sources in Berlin said Germany is pursuing discreet talks with U.S. authorities to help Deutsche secure a settlement over the sale of toxic mortgage bonds well below the mooted $14 billion.
Resolution through a reduced settlement is crucial for Chancellor Angela Merkel, who faces a federal election next year. It could be political poison for her government to rescue a bank that got into trouble through speculating.
Shares in Deutsche Bank rose around 2 percent to 12.3 euros on Thursday, having fallen below 10 euros for the first time ever last week.
Analysts said there may be scope for yields to fall further after France and Spain complete bond auctions on Thursday morning.
France is scheduled to sell up to 7.5 billion euros of long-term bonds, including a 50-year bond, while Spain will issue bonds due in 2021, 2026 and 2037 as well as an index-linked bond maturing in 2021.
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