LONDON: German bond yields edged up from record lows on Thursday after a report showed better-than-expected private-sector growth in Europe's largest economy and an increase in U.S. interest rates began to look more likely.
Ten-year yields climbed 3 basis points to a day's high of 1.013 percent, coming off lows of 0.952 percent last week. Many strategists said the rise in yields was unlikely to last if tension between Russia and the West keeps markets subdued.
"What we are seeing right now is a consolidation of the market at extremely low yield levels, and going forward we do still see the scope for yields to fall further if we see an increase in geopolitical tensions in the coming weeks and months," said Marius Daheim, chief strategist at Bayerische Landesbank.
Germany's flash PMI readings for August beat expectations, but they slipped from July as Russian sanctions with the West over the Ukrainian conflict continued to bite.
Euro area data came in below forecast, falling from the previous month.
Citi predicts Bund yields will drop as low as 0.75 percent by year's end, reflecting an increased probability that the ECB will begin an asset-purchase programme, known as quantitative easing, to re-start the bloc's stalled economy.
The bank's forecast for Bund yields has almost halved in the space of a month.
The leaders of Russia and Ukraine are set to meet next week for the first time in months to try to end their confrontation over the separatist rebellion in eastern Ukraine, raising hopes of some de-escalation of the conflict.
The euro zone data came after a preliminary reading for Chinese manufacturing, which fell short of forecasts from economists polled by Reuters. Equivalent US readings will be released later on Thursday.
Any weakness in the U.S economy will muddy the waters for the U.S. Federal Reserve, which is considering when to raise interest rates - a move that will reverberate across global markets.
Minutes from the Bank's last meeting noted surprising strength the U.S. labor market, raising the prospect of a near-term rate hike and sending US Treasury yields to one-week peaks.
Markets participants will now be waiting for Friday's speech by Fed Chair Janet Yellen at the annual Jackson Hole, Wyoming conference of central bankers. Economists generally expect loose U.S. monetary policy to continue for the foreseeable future.
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