LONDON Euro zone government bonds edged lower on Friday, changing direction as investors took advantage of an early rise in yields to buy, sending yields back down.
Reports on strong growth in private-sector activity in the bloc had pushed euro zone government bond yields up 1-4 basis points across the board in early trade.
This gave investors the opportunity to "buy the dip", while uncertainty over a delayed U.S. healthcare vote that may have implications for the "Trumpflation" trade also weighed on yields, analysts said.
"It's a hunt for yield, completely hunt for yield, which is why investors are buying the periphery more," said BBVA strategist Jaime Costero Denche, referring to low-rated South European countries.
Spain's 10-year government bond yields led the reversal dropping to a three-week low of 1.677 percent, down 4 basis points on the day and 8 basis points off the daily peak.
"Within the periphery, Spain is always the focus of buying because it has no political or economic issues at the moment. Imagine if you are a portfolio manager and trying to explain to your boss that you are buying Italian govvies at the moment," said Costero Denche.
Italy's 10-year government bond yields have risen over 70 basis points this year on concerns over politics, a weak banking system and wider worries over euro zone break-up risks. It was unchanged at 2.44 percent on Friday.
Earlier, a survey showed businesses across the euro zone ramped up activity at the fastest pace in almost six years in March to meet burgeoning demand. French and German business activity also expanded more than expected in March.
Any reading above 50 on the PMI index suggests expansion, and the French number was 57.6, the German 57.0 and the euro zone equivalent 56.7.
Doubt has grown over U.S. President Donald Trump's ability to deliver fiscal stimulus measures promised during his election campaign last year, putting additional pressure on yields.
The success of a key healthcare bill later on Friday will be a signal of whether Trump can get growth and inflation-boosting measures passed into law in the world's richest country.
Most high-rated euro zone bond yields edged lower on Friday, while the yield on 10-year Belgian and French government debt was 2 bps lower.
Global bond yields and stock markets have risen sharply since December on expectations of "Trumpflation", but U.S. stocks suffered their biggest daily fall since June earlier this week.
"I am hesitant to read too much into the bond moves while this healthcare reform measure is hanging over the market," said DZ Bank strategist Christian Lenk.
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(Editing by Ed Osmond)