Battered euro zone bonds recovered ground on Thursday.
But were set to end March with one of their biggest selloffs in years as rising inflation and rate-hike risks left German Bund yields on track for their biggest monthly jump since 2009.
Most 10-year yields across the single currency bloc fell 7-8 basis points, a day after strong German and Spanish inflation prints triggered fresh selling.
French inflation rose to a record high 5.1% in March, data on Thursday showed, although falling oil prices brought some comfort to bond investors.
Surging inflation, which has raised expectations that the European Central Bank may have to hike interest rates sooner rather than later.
And a more aggressive stance from the likes of the U.S. Federal Reserve have sent bond markets reeling.
Germany's 10-year Bund yield, down five basis points (bps) at 0.59%, is up 42 bps in March and set to end the month with the biggest monthly surge since 2009.
If yields rise any further they would be on track for the biggest move since 1996.
Two-year German yields, trading just under 0%, have jumped around 48 bps this month - poised for their biggest monthly rise since 2011.
Dutch and French 10-year bond yields were set for their biggest monthly rises since 2012 and 2011 respectively, with monthly rises over 40 bps each.
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"This is very significant," said ING senior rates strategist Antoine Bouvet.
"A move of this magnitude will have investors reassess the riskiness of their bonds portfolio and have market participants who thought their rates risk was negligible until now hedge it."
Euro zone inflation is increasingly likely to stabilise around 2% but the ECB should be ready to change.
Course if the outlook deteriorates due to Russia's war in Ukraine, ECB chief economist Philip Lane said on Thursday.
Yield surges in euro area bond echoed similar milestones being seen in other major debt markets.
U.S. 2-year Treasury yields are up around 85 bps in March, set for their biggest monthly increase since 1989, according to Refinitiv data.
They are up 155 bps this quarter, on track for the biggest quarterly jump since 1984.
Commerzbank (DE:CBKG) bond analysts said investors seemed unwilling.
"To catch the falling knife" and with inflation headwinds and aggressive monetary policy exit pricing still in vogue.
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They were sticking with their view that further weakness in German bonds was likely. - INVESTING
