Eurozone government bond yields rose on Friday as a survey showed that the business sentiment of the euro area's largest economy was better than expected, dampening some of the enthusiasm that had pushed yields lower earlier in the week.

A survey by the Ifo Institute in Germany in October showed that German business confidence ended a four-month decline, providing a breathing space for a country that has been striving to ward off an economic downturn.

Additionally, data from the European Central Bank showed that bank loans in the euro area continued to rebound last month, with the growth in money supply exceeding expectations.

ING Groep economist Bert Colijn stated: 'The European Central Bank may see today's data as an encouragement, that further loosening of the monetary policy will have an impact on improving economic prospects.'

The yield on Germany's 10-year government bonds rose by 3.5 basis points to 2.289%, retreating from this week's seven-week high of 2.334%.

Latvian central bank President Martins Kazaks stated that the European Central Bank may need to ease its policy at a faster pace than previously anticipated. This is in line with the views of some policymakers who have recently indicated that inflation rates could soon fall below the bank's 2% target.

However, three officials from the European Central Bank tried to temper market speculation about larger interest rate cuts on Thursday, urging the central bank to proceed gradually after three rate cuts earlier this year.

Currently, traders have fully priced in the possibility of a 25 basis point rate cut by the European Central Bank in December, with a 36% probability of a 50 basis point cut, up from 20% a week ago.

German two-year government bond yields are more sensitive to interest rate expectations, rising 4.5 basis points after hitting a three-week low on the previous trading day, to 2.143%.

The spread between French and German 10-year yields closed at 74 basis points, lower than the approximately 80 basis points at the end of September. This is the premium investors demand for holding French bonds.

Before rating agency DBRS planned to review Italy's sovereign debt, the Italian 10-year yield increased by 3 basis points to 3.492%. The yield spread between Italy and Germany is 120.9 basis points.