LONDON: Germany's 10-year government bond yield fell to a two-week low below zero percent on Thursday, a day after a disappointing German Ifo sentiment survey that exacerbated concerns about the euro zone's economic outlook.
Elsewhere, Italian bond yields rose 6-7 basis points ahead of a key ratings review from S&P Global, and on worries over government infighting.
But German Bunds, the benchmark for the region, saw their yields head back towards recent 2-1/2-year lows on weak data from Europe's powerhouse economy Germany have pushed.
News overnight only added to a sense that world economic conditions remain weak, supporting fixed income markets.
South Korea's economy unexpectedly contracted in the first quarter of the year, while the Bank of Japan pledged to keep interest rates "extremely low" at least through early 2020.
The Bank of Canada on Wednesday held interest rates steady but removed wording in its statement about the need for future hikes.
"The subdued global economic backdrop and the dovish tone from central banks means a continuation of the trend in bond markets seen in recent days," said Commerzbank rates strategist Rainer Guntermann.
"The euro zone economic data, starting with the PMIs last week, have been weaker than expected."
Germany's 10-year bond yield touched a two-week low at minus 0.019 percent, having dropped back into negative territory after Wednesday's Ifo sentiment index fell short of expectations. They were set to close the day at minus 0.01 percent, flat on the day.
Most 10-year euro zone bond yields were marginally higher on the day after hefty falls of 5-6 basis points the previous day .
A key gauge of the market's long-term euro zone inflation expectations meanwhile dipped below 1.40 percent, having touched a one-month high earlier this week.
"We think the CPI (consumer price index) profile is going to be a lot lower than the market anticipated at the start of 2019," said Rabbani Wahhab, senior fixed income portfolio manager at London and Capital in London.
"So all in all, we expect this zero or negative environment for 10-year Bund yields to stay for some time come."
In Italy, 10-year bond yields were up to seven bps higher on the day, with the Italian/German bond yield gap hitting its widest in two months at 270 bps.
The gap between Spanish and safer German government bond yields has also widened this week, a move analysts attributed to caution ahead of Spanish elections this weekend and Friday's S&P review of Italy's ratings.
Spain's election is its most divisive in decades and the outcome is uncertain, with no single party close to winning a parliamentary majority.
"We can't say for sure what the make-up of the next coalition will be, but I don't think it will challenge the consensus (on Europe)," said Michael Krautzberger, head of BlackRock's pan-European fixed income team.
"So I'm not too nervous about the Spanish election."
Italy's government, meanwhile, approved an economic growth plan in the early hours of Wednesday after a bad-tempered cabinet meeting that exposed divisions in the ruling coalition and fuelled speculation that it could collapse.