Even as European factory output expanded, declining global trade may weigh on the region's recovery and the chances of a higher interest-rate environment, Annalisa Piazza, a fixed- income analyst at Newedge Group in London, wrote to clients.

A report from HSBC Holdings Plc and Markit Economics today showed China's manufacturing shrank more this month than economists predicted.

The European Central Bank, which has kept it benchmark interest rate at a record-low 0.5 percent since May to spur growth, next meets on Aug. 1

“We rule out that today's PMIs will lead to any change in the ECB policy stance at next week's governing council meeting,” Piazza wrote. “We expect the ECB to keep policy at the current accommodative level and reiterate its forward guidance of keeping rates at current or lower levels for an extended period.”

Eoin Treacy's view Germany represented the ultimate safe haven within the Eurozone as speculation centring on possible solutions to the sovereign debt and banking crisis tended towards pessimism. Mario Draghi assumed office in 2011 and following his announcement last year that he would do whatever was necessary to protect the integrity of the Euro, German 10-year Bund yields stabilised above 1%.

Yields surged higher in May, in tandem with other government bonds, to test the upper side of the more than yearlong base. They paused last week in the region of 1.5% and rallied impressively today to reassert supply dominance. A sustained move below 1.5% would now be required to question potential for additional yield expansion.

Just as the surge in yields that began in May occurred with a high degree of commonality, today's weakness in Bunds was shared by other sovereign bond markets. US Treasury yields have given up less of their advance and continue to firm in the region of 2.5%. While some additional ranging would appear to be the most likely outcome, a sustained move below the 200-day MA, currently near 2.05%, would be required to question medium-term supply dominance.