LONDON: Euro zone government bond yields fell on Wednesday as manufacturing and industrial data in the euro zone and Japan pointed towards hurdles ahead as the world recovers from the depths of the COVID-19 crisis.

Solid demand for a Treasury auction in the United States also underpinned bond markets.

Euro zone industrial output declined in February after expanding in January, dampening prospects for economic growth in the first quarter, while Japanese machinery orders fell by the most in about a year in February.,

Euro zone bond yields, which had been rising in line with US Treasury yields on hopes for a strong economic recovery later this year and increased inflation, dropped 1-3 basis points.

"The global picture is that the manufacturing sector is in rude health and is the sector that is leading the recovery, so perhaps there's a bit of a reaction to that," said ING rates strategist Antoine Bouvet.

A solid 30-year auction by the US Treasury also prompted a bond relief rally, Bouvet added. US Treasury yields fell and the yield curve flattened on Tuesday in the wake of the sale.

Germany's 10-year bond yield, the benchmark for the single currency bloc, dropped 1.3 basis points to -0.304%, having hit a near two-week high of -0.27% on Tuesday after US inflation data came in slightly above expectations.

Other euro zone bond yields were also 1-3 basis points lower on the day.

Ten-year US Treasury yields nudged higher to 1.63%, having dropped nearly 4 basis points late on Tuesday.

"The overall pictures is for rising yields. Lots of people believe a strong recovery is in the price, but this depends on the Fed's communication - the start of the tapering debate needs to be this year given the potential strength of the recovery," said Bouvet.

Several US Federal Reserve officials are due to speak later on Wednesday.