The European Central Bank kept its super-easy monetary policy unchanged as expected and its president, Mario Draghi, said underlying inflationary pressures remained subdued.
That pushed the euro lower against other major currencies <EUR=> <EURGBP=>, while European stock markets rallied <.STOXX>.
The dovish tone from Draghi, who also played down divisions among ECB policymakers, capped a rise in government bond yields even as U.S. Treasury yields rose to two-week highs after stronger-than-forecast economic data.
"Draghi's news conference was generally dovish, but doesn't really tell us anything new," said Orlando Green, European fixed income strategist at Credit Agricole.
Germany's benchmark 10-year bond yield was up 3 basis points at 0.30 percent <DE10YT=TWEB>, pulling back from a one-month high of 0.33 percent hit earlier in the day.
Other euro zone bond yields were 3-4 bps higher on the day, but off earlier peaks, with Dutch, Finnish and French yields also retreating from one-month highs.
A gauge of the market's long-term euro zone inflation expectations meanwhile fell to a session low around 1.73 percent <EUIL5YF5Y=R> after Draghi's comments.
Separately, the ECB said the only assets it would buy with yields below the deposit rate were government bonds, having scrapped a self-imposed rule last month to buy debt yielding below the minus 0.40 deposit rate to address a scarcity of eligible debt for its bond buying stimulus.
The ECB's tone came in stark contrast to hawkish comments from Fed chief Yellen that rattled world bond markets.
Yellen said on Wednesday that it "makes sense" for the U.S. central bank to gradually lift interest rates, putting the focus on inflationary pressures in the global economy.
"The Yellen comments really suggests that the U.S. is committed to multiple rate hikes this year. Up to now the tightening cycle has been glacial and they want to step it up," said ING strategist Martin van Vliet.
"It highlights the underlying inflationary pressures that are mostly in the U.S. but also unquestionably in Europe."
Elsewhere, euro zone government debt supply cranked into gear again, and after Belgium and Italy raised 12 billion euros between them from the sale of 10-year and 15-year bonds respectively, the focus on Thursday shifted to the short end.
France sold nearly 8 billion euros of three-year and five-year bonds while Spain raised 4.8 billion euros at a triple bond auction.
(Editing by Ruth Pitchford)
By Dhara Ranasinghe and Abhinav Ramnarayan