Ten-year bond yields in Germany were set for a fifth straight week of declines, Italy's 10-year bond yield was poised for its biggest weekly falls since mid-2018 and Spanish 10-year yields, down 23 basis points this week, were on track for their biggest weekly fall since 2016.
ECB policymaker Olli Rehn on Thursday flagged the need for a significant easing package in September, sending yields across the bloc to new lows.
Alongside increasing concern about global recession risks, fuelled after the U.S. bond yield curve on Wednesday inverted for the first time in 12 years, this has meant another stellar week for bond markets where prices have shot up -- pushing yields down.
"The underlying concern and drivers such as a recession and the expectation for an aggressive policy response, fuelled by Rehn's comments yesterday, has given the bond market another boost at already elevated levels," said Commerzbank rates strategist Rainer Guntermann.
Most 10-year bond yields in the euro area were flat to a touch higher on the day, while ultra-long dated yields continued to nudge lower in a sign of relentless demand for yield in a market where over $15 trillion worth of bonds globally have a negative yield.
Germany's 10-year bond yield hovered near a record low around -0.71% and is down around 11 bps this week. German 30-year yields touched a fresh record low of -0.275%.
"The (Rehn) news allowed the 10-year Bund yield to break through the -0.70% yield threshold. This is significant because we suspect this level to be the new effective lower bound for the ECB deposit rate," said ING senior rates strategist Antoine Bouvet.
In Italy, speculation that the ECB will cut rates and unveil other easing measures at its September meeting has helped the bond market recover from sharp selling a week ago after the prospect of a snap election moved back into focus.
Italian 10-year yields are down around 45 bps this week and were a touch higher on Friday at around 1.37%, still holding near their lowest levels in almost three years.
Analysts also noted a sharp tightening in the gap between swap spreads and German bond yields this week, in a sign that markets were lowering the scarcity premium attached to holding German bonds and positioning for fiscal stimulus in the euro area.
And while many expected bond yields to remain at ultra-low levels, some believed market concern about recession risks -- reflected in the inversion of the U.S. 2-10 year yield curve this week -- were overdone.
"We don't see a recession coming 'imminently' even though the U.S. yield curve has inverted," said Fahad Kamal, chief market strategist at Kleinwort Hambros. "Bonds remain hideously expensive."