LONDON: German bond yields dipped on Thursday as disappointing business activity data fed demand for safe-haven assets and firmed up bets that the European Central Bank will adopt more stimulus measures.
Markit's Composite Flash Purchasing Managers' Index for the euro zone, seen as a good growth indicator, fell to 51.4 in November, missing the lowest forecast in a Reuters poll. New orders dropped for the first time in over a year.
The weak outlook prompted some investors to take refuge in top-rated German bonds, but there was little evidence of selling pressures in the bloc's riskier debt markets as accounts remained positioned for additional central bank easing.
The ECB is set to start buying asset-backed securities this week, extending its purchase scheme from covered bonds, but many remain sceptical that this will help expand the central bank's balance sheet by the trillion euros pledged.
These barriers, plus the weakening outlook, are enough to convince many that controversial purchases of public debt are just around the corner.
"You can argue that the worse the situation gets the more likely it is that the ECB will buy government bonds," said Alessandro Tentori, global head of rates strategy at Citi.
"That is why you have a hard time getting people to sell BTPs (Italian bonds) and Bonos (Spanish bonds) just because the economy is faltering."
German 10-year yields dipped 3 basis points to 0.81 percent.
Italian and Spanish equivalents were both 2 bps lower at 2.30 and 2.11 percent, respectively, after Spain offloaded 3 billion euros of debt at auction.
France also issued around 7.5 billion euros of bonds maturing in 2017 and 2019.
Rabobank strategists, describing France's sale as "solid", said expectations of Japanese buying had proved supportive.
Focused on the bloc's economic outlook, euro zone markets shrugged off US Federal Reserve minutes released on Wednesday.
The Fed opted not to nod to financial market volatility and a weakening global economy in its policy statement last month, minutes released on Wednesday showed, though it kept a passage on holding rates low for a "considerable time".
U.S Treasury yields seesawed after the minutes, but eventually forged higher as bets firmed for a rate rise in the middle of 2015.
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