By Patrick Graham and Dhara Ranasinghe
LONDON (Reuters) - Euro zone government bond yields and the euro fell on Thursday, after European Central Bank chief Mario Draghi said policymakers did not discuss removing the bank's easing bias on monetary policy at this month's meeting.
Bond yields and the single currency had initially jumped after comments from Draghi that the recovery was "increasingly solid" and that downside risks to the euro zone's recovery had "diminished".
But Draghi also stressed that the ECB still faced barriers to tightening the ultra-loose financing conditions it has maintained for the past nine years.
"With the first round of the French election behind us and the euro area recovery becoming increasingly robust and broad-based, one would have expected the ECB to feel more comfortable about adjusting its communication," said Frederik Ducrozet, a senior economist at Pictet.
"Yet the Governing Council decided to leave its policy stance and forward guidance unchanged notwithstanding the 'increasingly solid' recovery and 'diminished' downside risks to the outlook."
Earlier on Thursday, the ECB left its key interest rates unchanged following a meeting.
In volatile trading as investors digested mixed messages from the ECB chief, German government bond yields gave up initial rises and fell.
The benchmark 10-year Bund yield was last down almost 4 basis points at 0.31 percent
Other euro zone bond yields broadly fell, with lower-rated debt yields in southern Europe -- key beneficiaries of the ECB's bond-buying stimulus -- seeing the steepest falls.
Portugal's 10-year government bond yield slid almost 10 bps to 3.48 percent
Italy's FTSE MIB (FTMIB) and eurozone bank shares (SX7E) hit a day's low, last down 1.6 percent, although the broader euro zone STOXX 50 (STOXX50E) pared earlier losses.
The euro fell 0.4 percent on the day to a low of $1.0850
"The Q&A revealed that ... some of the members hadn't turned at all whereas I felt Draghi had shifted a little bit to be less dovish," said Neil Jones, head of FX sales at Mizuho.
"I didn't sense that was unanimous," he added, saying Draghi's comment on the easing bias had added to pressure on the euro.
Money market rates meanwhile fell as investors scaled back expectations for higher ECB interest rates in the coming months.
Forward Eonia bank-to-bank rates dated for the ECB meeting on March 8, 2018, stood at around minus 0.31 percent, about 5 basis points above the Eonia spot rate of minus 0.36 percent.
This gap suggests markets are pricing in roughly a 50 percent chance of a rate hike early next year, compared with around 60 percent earlier in the day.