* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
(Updates throughout)
By Dhara Ranasinghe
LONDON, April 26 (Reuters) - Italy's 10-year bond yield rose
to a two-month high on Monday with most other euro zone bond
yields also nudging higher as a growing sense that the worst may
be behind for a coronavirus-battered economy took hold.
Italy's 10-year bond yield rose almost 4 basis points to a
peak of 0.82% as prices fell and the gap over German
peers widened out to 106 bps -- the most since early March.
Analysts noted upcoming supply as one reason for weakness in
peripheral bonds, along with a feeling that a brighter outlook
for the euro area could encourage the European Central Bank to
slow the pace of its bond buying stimulus in the months ahead .
Greek 10-year yields were up 2.5 bps at 0.92%,
shrugging off S&P's decision on Friday to lift Greece's rating a
notch to 'BB'.
"Bonds are a bit on the back foot and that might be in
anticipation of a generally less supportive ECB environment
after June," said ING senior rates strategist Antoine Bouvet.
"That's the main factor and also when we get an environment
where rates are moving higher there tends to be greater
volatility in Italy versus say the German bond market."
Most 10-year bond yields across the currency bloc were a
touch higher on the day, while U.S. Treasury yields also edged
up.
Germany's Ifo institute said its business climate index,
viewed as a leading economic indicator, edged up to 96.8 on
April from 96.6 in March, rising less than expected as a third
wave of COVID-19 weighed on Europe's biggest economy.
Analysts said the data suggested a pause rather than a
slowdown in economic activity with a pick-up in the vaccination
rollout boosting the outlook.
The EU should meet its target of vaccinating 70% of adults
by summer, according to NatWest Markets.
Germany's 10-year Bund yield was up half a basis point at
-0.25%, but below seven-week highs hit last week.
Andreas Billmeier, European economist Western Asset, said
the uptrend in European bond yields should be gradual and fits
in with the overall picture of a recovering economy.
"If you take out the U.S. rates dynamic, what you have is an
economic recovery and that should go hand in hand with higher
rates," he said.
"Note that the ECB didn't make a peep when yields rose
between December and February but only once volatility coming
from the U.S. kicked in."
The ECB stepped up the pace of its bond purchases in March
to contain a rise in borrowing costs, driven by U.S. Treasuries.
(Reporting by Dhara Ranasinghe; Editing by Kirsten Donovan)