LONDON: German bond yields stabilised after a sharp rise in recent days as weak private sector growth data reaffirmed the size of the ECB's quantitative easing task in buttressing the euro zone's fragile recovery.
German yields remain on track for one of their weakest weeks this year but the 10-year yields fell 1 basis point to 0.16 percent after the data, having hit a two-week high of 0.176 percent in early trading.
"What we have this morning is a correction after a very sharp sell-off," Natixis strategist Cyril Regnat said.
"(ECB President) Draghi was right when he said it (QE) was a marathon. We are at an early stage in this European recovery."
Markit's preliminary business activity survey for April came up short of forecasts with data from the bloc's two major economies, Germany and France, dragging on the average.
Diminishing fears of an imminent default in Greece have drawn investors back to riskier, higher-yielding bonds this week, partly reversing the seemingly unstoppable fall in safe-haven German bond yields towards zero.
In the week to date, German 10-year yields have risen about 8 basis points. Only two other weeks in 2015 have seen rises of this magnitude, in early March and early February.
The sell-off coincided with comments from influential fund manager Bill Gross, who said 10-year German bonds were "the short of a lifetime".
But euro zone data released on Thursday, based on surveys of thousands of companies and seen as a good growth indicator, missed even the lowest forecast in a Reuters poll.
Swivelling investor attention back onto the market importance of the European Central Bank's one-trillion-euro purchase programme, yields across the bloc fell on the day.
Low-rated Italian and Spanish 10-year yields were down 1-2 bps at 1.39 percent and 1.36 percent . Portuguese yields fell 3 bps to trade back below 2 percent.
Lisbon swapped over 4.5 billion euros in bonds expiring in 2017 and 2018 for 4 billion euros in much longer maturities, alleviating its medium-term bond redemptions.
Greek yields fell 41 bps to 12.50 percent, easing back from 2-1/2-year highs hit this week as the government looks likely to be able to scrape together enough cash to meet its payment obligations into June.
Greek newspaper Kathimerini reported on Thursday that Athens is considering asking the European Stability Mechanism to buy Greek government bonds held by the European Central Bank to pay for debt redemptions this summer.
German Chancellor Angela Merkel was expected to press Greek Prime Minister Alexis Tsipras later on Thursday to move faster to agree detailed economic reforms crucial to unlocking bailout funds before Athens runs out of cash.
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