LONDON: German bonds rose in choppy trading on Monday, but analysts expected yields to hold around current levels with no major data this session and uncertainty over the US monetary policy outlook.
French and Italian industrial output data was mixed on Monday, while figures on Friday showed US employers stepped up hiring a bit in May, keeping alive the prospect of the Federal Reserve eventually scaling back its bond-buying programme.
The US jobs numbers were not strong enough to warrant any immediate reduction, however, leaving investors uncertain on when the process may begin.
The recent rise in German and US yields suggests bond markets are already pricing in such a change, analysts said. They would need fresh impetus to rise further, they added.
"Yields have now moved to a level where they are consistent with a (monetary policy) change coming, but they also take into account that there is still a lot of uncertainty when exactly that change is going to come," Elwin de Groot, senior market economist at Rabobank said.
"Only when the situation becomes clearer, when there is a more consistent pattern of strong economic data, you can argue that ... the yields will start to move higher."
German Bund futures rose 24 ticks to 143.63 after failing to break below a key support level at 143.20, traders said, but German yields remained near recent highs.
Ten-year German yields were 1.5 basis points lower at 1.49 percent, having last week hit their highest in nearly three months at 1.534 percent.
Two-year German yields were flat at 0.17 percent having hit their highest since mid-February at 0.198 percent earlier. They rose after the European Central Bank failed to hint at imminent monetary easing last week.
"With the current yield levels, there is a chance for stabilisation in Treasuries, also in Bunds," Rainer Guntermann, strategist at Commerzbank, said.
Lower-rated bonds were little changed on the day, with Italian 10-year yields flat at 4.21 percent and equivalent Spanish borrowing costs 1.5 bps lower at 4.55 percent.
Data out of the euro zone was mixed, with Italian industrial output coming in weaker than expected in April but the French equivalent beating economists' forecasts that same month.
French government bonds rose with 10-year yields falling 2.7 basis points to 2.11 percent.
France will eke out meagre growth in the second quarter, putting a short-lived recession in the euro zone's second biggest economy to a halt, the central bank forecast on Monday.
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