* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
By Yoruk Bahceli
AMSTERDAM, March 19 (Reuters) - Benchmark German bonds
rallied on Friday, tracking U.S. Treasuries, and were set to end
the week unscathed from a hefty bond sell-off across the
Atlantic.
With investors digesting the U.S. Federal Reserve's
willingness to let inflation drift above target after
Wednesday's meeting, U.S. 10-year Treasury yields shot up on
Thursday to their highest since January 2020, pulling up euro
area bond yields with them.
But markets calmed on Friday with Treasury yields falling
and German 10-year yields, the benchmark for the euro area, were
down 3 basis points (bps) to -0.29% at 0805 GMT, set to end the
week unchanged.
In contrast, 10-year U.S. Treasury yields are up 4 bps this
week.
But the picture is mixed. 30-year German bond yields - which
rose to their highest since January 2020 on Thursday - have
risen more than their U.S. equivalents this week.
Thursday's sell-off also pushed the gap between 10 and
30-year German bond yields to its largest since 2019, meaning
that longer-dated yields are rising faster than shorter-dated.
Analysts said that even though the euro area bonds had
outperformed those in the United States, the higher yield levels
are still concerning in the aftermath of the European Central
Bank's decision last week to accelerate its bond purchases.
Driven by bets that a vast U.S. fiscal stimulus package will
boost growth and inflation, the bond sell-off has largely been
seen as exported into Europe, stoking fears of an unwarranted
tightening in financial conditions in the bloc, which faces a
weaker recovery outlook than the United States.
"One week after the ECB meeting markets must be wondering
when precisely the 'significant' increase in PEPP purchases will
unfold - or if the selling pressure by investors is materially
higher," Michael Leister, head of interest rates strategy at
Commerzbank told clients.
Headlines on Friday underscored the weaker outlook in the
euro area.
France imposed a month-long lockdown on Paris and parts of
the north after a faltering vaccine rollout and spread of highly
contagious coronavirus variants forced President Emmanuel Macron
to shift course.
Several euro area countries were set to resume vaccinations
with AstraZeneca's shot on Friday after the European Medicines
Agency said its benefits still outweighed the risks.
(Reporting by Yoruk Bahceli. Editing by Mark Potter)