Germany's 10-year yield , the benchmark for the euro zone, was little changed at 2.514% after hitting its highest level since August 2011 on Wednesday at 2.57%. Yields move inversely with prices. European Central Bank policymaker François Villeroy de Galhau said on Wednesday investors betting on more interest rates hikes by the European Central Bank have 'overreacted' to recent strong U.S. data and central bank communication.
The ECB's last meeting had already guided for a 50 bps hike in March.
"Mr. Villeroy's words carry weight not only because he is considered a pragmatic mind in the ECB governing council but also as he has in the past correctly flagged what the ECB was up to," said Christoph Rieger, head of rates & credit research at Commerzbank.
"His statement ... should contribute to a stabilisation in front-end valuations," Rieger added.
Germany's 2-year yield , which is most sensitive to changes in interest rate expectations, fell 1 basis point (bps) to 2.906%. It hit its highest level since 2008 on Wednesday at 2.971% and has risen over 50 bps since the middle of January.
Meanwhile, the minutes from Fed's last policy meeting indicated that curbing unacceptably high inflation would be the "key factor" in how much further rates need to rise, even as they hiked rates at a slower pace.
Data since the Fed's February meeting has shown a robust labour market and sticky consumer prices, prompting bets that the Fed will have to raise rates higher and keep them there for longer.
"The Fed minutes confirmed the view for now of further interest rate hikes," said Sebastian Grupp, analyst at DZ Bank.
Money markets are now pricing in a peak rate of about 5.35% by the Fed's July meeting, or the equivalent of about three more 25 basis point hikes from the current range of 4.5%-4.75%.
Data on inflation will continue to drive expectations for monetary policy and Eurostat releases final euro area consumer prices data on Thursday.
Markets expect the data to be revised higher given Eurostat had assumed an annual rate of change of 8.6% for Germany when compiling the flash estimate, lower than the final print of 9.2% that was published on Wednesday.
"There will probably be an upward correction but markets are already expecting that so it may not be a market mover today," DZ Bank's Grupp said.
Italy's 10-year yield was last down 3 basis
points to 4.431% after hitting a seven-week high of 4.537% on
Wednesday. The spread between Italian and German 10-year yields narrowed to 191 basis points after hitting its
widest level in three weeks in Wednesday.
(Reporting by Samuel Indyk; Editing by Kim Coghill)
