A U.S. tariff increase to 25% on $200 billion worth of Chinese goods took effect on Friday. Beijing said it would strike back, increasing tensions as the two sides pursue last-ditch talks to try salvaging a trade deal.

Stock markets in China and Europe seemed to be looking past the tariff hike, pushing safe-haven German 10-year bond yields off six-week lows hit on Thursday at minus 0.069 percent.

Still, German yields are down six basis points this week and set for their biggest weekly drop in seven weeks.

And 10-year U.S. Treasury yields on Thursday briefly fell below three-month bill rates for the first time since March when an inversion had stoked talk of a U.S. recession.

"The possibility of more protracted U.S.-China trade stand-off has seen Europe's tentative growth optimism slipping away - and with it fiscal concerns are creeping back in," said ING senior rates strategist Benjamin Schroder.

Most long-dated euro zone bond yields were a touch higher in early trade as European stock markets rallied.

Italy's bond market stabilised after this week's selloff, with 10-year yield slightly lower on the day at 2.66 percent. Still, with a rise of 11 bps this week, it was set for its biggest weekly jump in three months.

Infighting within the ruling coalition, a warning from the European Commission that public finances would deteriorate further and politicians raising the possibility that Italy could breach EU rules on public spending have unnerved investors.

Italian Economy Minister Giovanni Tria said on Thursday the European Union's public finance rules known as the "fiscal compact" should be scrapped because they are bad for the economy.

"This all feeds into a narrative that Italy is headed up for a confrontation with the EU later this year," said Rabobank rates strategist Lyn Graham-Taylor. "At the current level, we would be short Italian bonds heading into the European parliament elections."