The inflation outlook has failed to improve since a July rate hike, Schnabel said, suggesting she favours another large interest rate increase next month.
The bloc's borrowing costs jumped on Wednesday on inflation fears after UK price growth hit double digits, shifting investors' focus away from recession risks that could slow monetary tightening.
Germany's 10-year government bond yield, the benchmark for the bloc, rose 2.5 basis points (bps), after hitting an almost four-week high of 1.15%.
In mid-June it reached its highest level since 2014 at 1.926%, before falling to 0.678% on Aug. 2 as investors scaled back their expectations for ECB rate hikes.
Money markets are currently pricing in a 50 bps ECB move in September and a 35% chance of an additional 25 bps.
"Swap spreads are rich and are already pricing in significantly more monetary tightening compared to just looking at Bund yields," said James Ringer, fund manager at Schroders.
"But weak PMI data on Tuesday (next week) showing a deterioration of economic growth, might cap a further yield rise," he added.
Meanwhile, U.S. Treasury yields fell in London trade after rising overnight. The 10-year yield was down 2.5 bps to 2.86%.
Minutes of the last Fed meeting released on Wednesday showed U.S. central bank policymakers were committed to raising rates to tame inflation - even as they began to acknowledge the risk that they might go too far and curb economic activity too much.
Italy's 10-year government bond yield fell 0.5 bps to 3.31%, after hitting its highest since July 28 at 3.374%, with the spread between Italian and German 10-year bond yields at 220 bps.
The BTP-Bund spread has widened by 15 bps over the last two sessions, in a move likely to have been exacerbated by thin August liquidity.
Citi analysts suggested various drivers behind recent spread widening, including limited PEPP (Pandemic Emergency Purchase Programme) reinvestment flexibility in August, given no core or semi-core government bonds redemptions, and a deteriorating net supply backdrop in September.
The so-called first line of defence against fragmentation - PEPP reinvestments - showed significant support for the bond markets of Italy and Spain in July.
"We forecast Italy's net cash requirement (NCR = gross supply less free float coupons, redemptions, net QE) increasing to flat in September from -EUR16bn and -EUR14bn over the last two months," Citi analysts said in a research note.
(This story corrects German bond yield to 1.15%, not 1.5%, in paragraph 4)
(Reporting by Stefano Rebaudo, Editing by Catherine Evans)
By Stefano Rebaudo
