LONDON: German bond yields touched two-week highs of almost 0.80 percent on Wednesday after the sale of a 30-year bond failed to attract enough bids for the amount offered.
Investors steered clear even with the highest average yield seen at auction in nearly a year.
They were put off by the possibility of an interest rate rise in the United States.
The euro zone's benchmark bond touched levels seen just before the European Central Bank gave its clearest signal yet that it was prepared to extend its bond-buying scheme if growth and inflation remains weak.
Those comments were echoed by top ECB council members late on Tuesday, but investors remained on the sidelines before Thursday, when the US Federal Reserve may make its first rate hike in a decade - a move that would reverberate across global markets.
"There is no appetite to buy duration at these levels because yields are so low," said Societe Generale strategist Ciaran O'Hagan.
"Investors have got it into their heads that the Fed will eventually hike rates."
Germany got bids of 1.6 billion euros for a planned 2 billion top-up of its 30-year bond on Wednesday. It sold 1.549 billion euros in its sixth technically uncovered 30-year bond auction in a row.
Ten-year yields rose as high as 0.795 percent after the sale, after shooting up around 10 bps on Tuesday.
They are at levels last seen on Sept. 3, just before the ECB meeting.
Yields on lower-rated euro zone equivalents were flat to a touch higher on the day.
Strategists said sales of a 10-year bond from the European Stability Mechanism was also having an impact on markets, where trading is thin before the Fed meeting.
Data showing US consumer prices unexpectedly falling in August complicated the Fed's decision.
But it had little impact on markets, which see one chance in four the Fed will deliver its first rate increase in a decade when its meeting ends on Thursday. Nevertheless, bond yields point to the diverging monetary policies in the United States and Europe.
The gap between two-year German and US yields topped 100 bps late on Tuesday, its widest level in over eight years.
The odds are on the United States raising rates before the end of the year, while the ECB is more likely to signal further monetary easing.
ECB Governing Council member Ewald Nowotny said on Tuesday the bank's quantitative easing programme might be broadened or extended.
Vice President Vitor Constancio said that its scheme remained small compared to other initiatives around the world.
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