LONDON: A push towards zero by 10-year Bund yields halted on Wednesday as oil futures recovered and market participants hesitated to test the record lows reached before a sell-off last May.
Yields rose across the euro zone, although Portuguse debt underperformed as investors made room in their books for 2022 and 2045 bonds that Lisbon is selling via syndication.
Oil futures recovered from one-month lows as Kuwait's OPEC governor and two sources said all signs suggested a meeting of oil-producing countries on April 17 would deliver an agreement to freeze output.
Euro zone bonds have been closely following the oil market because of its impact on inflation expectations, which are well below the European Central Bank's target.
The ECB has ramped up its asset purchases to 80 billion euros a month from 60 billion. Most of the assets are government bonds, which has shrunk borrowing costs across the euro zone.
German 10-year yields, the benchmark for euro zone borrowing costs, rose 2 basis points to 0.12 percent - still not far from last Apri's record low of 0.05 percent. There is no consensus that Bund yields will drop to new lows and turn negative, but such bets are emerging.
Some analysts worry that expensive Bunds and poor liquidity could lead to another sell-off like last year's, when yields reached 1 percent weeks after touching the record lows.
"Bund strength looks set to run into resistance with 10-year yields approaching last year's memorable tipping point," Commerzbank rate strategist Rainer Guntermann said.
Some wariness before the release of the minutes of the Federal Reserve meeting later on Wednesday and the European Central Bank minutes on Thursday also contributed to more stable markets after Tuesday's 3-basis-point drop in Bund yields.
Germany sold 3.235 billion euros in a top-up of its 0.00 percent, 2-year Schatz notes at an average yield of minus 0.48 percent, in line with secondary market prices.
In Portugal, 10-year yields rose 11 basis points to 3.10 percent as the country was marketing its bonds.
Portuguese bonds have been the most volatile in the euro zone this year, amid worries about the government's budgetary discipline and the health of the country's banks.
A group of 14 asset managers have started legal action against the Portuguese Central Bank over heavy losses on nearly 2 billion euros ($2.3 billion) of bonds in Novo Banco, a bank created from the remains of Banco Espirito Santo.
ING senior rates strategist Martin van Vliet said the rise in yields before the auction was higher than usual, because "the newsflow out of Portugal was not really helpful."
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