A rally in European shares to near record highs and signs of a pick-up in inflation in big euro zone economies also weighed on euro area bonds, pushing 10-year yields up 4 to 5 basis points across the board.
In turn, Germany's 10-year bond yield rose over 5 bps to -0.26%, its highest level in almost two weeks. This left the gap with its US peers at just over 200 bps and near the widest levels in over a year.
There is a clear risk of self-fulfilling adverse dynamics taking hold, through which uncertain economic prospects induce households, firms and governments to hold back on expenditure plans, leading to a decline in overall demand that validates the loss in confidence about the future.
Hoping to prop up the economy until it is ready to reopen, the ECB has pushed borrowing costs to record lows through copious asset purchases and loans to banks at rates as low as minus 1%.
"The near-term economic outlook is subject to uncertainty, relating in particular to the dynamics of the pandemic and the speed of vaccination campaigns," Lagarde said in a blog post on the ECB's website.
We therefore stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.
"In my view, this hybrid model could be a possible compromise way forward, as long as an EDIS with full risk-sharing, covering both liquidity needs and losses in the steady state, remains the end goal," de Guindos said in a speech.