Borrowing costs across the euro area shot to multi-month highs as data confirmed inflation in Germany reached a 3 1/2-year high in January, coming close to the European Central Bank's target and stoking talk about an unwinding of its monetary stimulus.
French government bond yields hit 16-month highs, facing additional upward pressure from uncertainty surrounding upcoming presidential elections, a key political risk event for Europe.
But it was an unexpectedly high inflation figure from the German state of Saxony that triggered fresh selling across euro zone bond markets.
Consumer prices in Saxony rose by 2.3 per cent year-on-year in January, and preliminary data from several states showing that inflation accelerated in most German regions.
Nationwide inflation data released at 1300 GMT confirmed that German annual inflation increased further in January to 1.9 per cent. That was the highest level in more than three years, but not as high as some investors had expected after the state numbers.
The European Central Bank targets inflation at close to but less than 2 per cent, and signs of growing price pressures have led to speculation that the central bank would start to scale back its ultra-easy monetary policy sooner than expected.
"Inflation is moving higher, and this is fuelling talk about ECB policy, although I expect the ECB is likely to continue to play down tapering," said ING senior rates strategist Martin van Vliet.
"Still, the taper talk is a double whammy for peripheral bonds, which are also being hurt by a risk-off tone in markets."
Peripheral bond markets, viewed as key beneficiaries of ECB bond-buying stimulus, bore the brunt of the sell-off.
Italy's 10-year bond yield rose 11 basis points to 2.35 per cent, its highest since July 2015. Portuguese yields rose to their highest level in about a year.
ECB review in June
Germany's benchmark 10-year Bund yield initially rose to within striking distance of last week's one-year highs just off 0.50 per cent before pulling back to 0.47 per cent - still marginally higher on the day.
Austrian and Irish bond yields also hit multi-month highs before pulling back slightly.
A key gauge of the euro zone's long-term inflation expectations, the five-year, five-year breakeven forward rate, held near its highest level in over a year.
The ECB will probably first review its policy stance in June but stop short of any decision on winding down its huge economic stimulus programme, ECB rate setter Ewald Nowotny said overnight.
In France, additional unease over looming presidential elections pushed 10-year bond yields 7 bps higher to 1.12 per cent, the highest level since September 2015.
That widened the gap over top-rated German Bund yields to more than 60 basis points for the first time in three years.
The chance of one of France's two established political parties regaining power in May's vote was seen diminishing after the Socialists on Sunday picked a hard-left candidate and as Conservative leader Francois Fillon battled to contain a scandal over fake pay.
"A widening in French bond spreads is very much related to political events," said DZ Bank rates strategist Daniel Lenz.
Elsewhere, Greece's two-year bond yield soared to a one-month high at around 9 per cent on worries about whether the International Monetary Fund will participate in a bailout programme for the indebted southern European country.