* German yields pause after strong week
* Investors eye rising COVID-19 cases, inflation data
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, March 29 (Reuters) – Euro zone government bond yields steadied in early Monday trading while the German debt took a breather after notching up its best weekly performance in 3-1/2 months as rising COVID-19 cases sent investors scurrying back to safe-haven assets.
Core euro zone bond yields have fallen in recent weeks as a resurgence in cases of COVID-19 and new lockdowns in Germany, France and elsewhere, rattle investor confidence in the region’s economic recovery.
German Chancellor Angela Merkel over the weekend pressured states to step up their pandemic response to try to stem the rise in cases.
In early trading, the German 10-year yield stood unchanged on the day at -0.354%. Last week the yield fell almost 6 basis points, its biggest drop since December.
While broader market attention focused on the re-floating of the ship blocking the Suez Canal, bond investors are preparing for euro zone and U.S consumer confidence data — due on Tuesday — to see how the latest wave of COVID-19 is impacting consumer sentiment, as well as preliminary euro zone inflation data.
This quarter German bonds have outperformed U.S. Treasuries, where fears of a spike in inflation have sparked a significant selloff.
With the European Central Bank increasing the pace of its asset purchases and attention turning to challenges linked to Europe’s slow vaccination rollout, euro zone bond yields have fallen in March, in contrast to bond yields in the United States, which have continued to rise.
But some analysts reckon the trend could start to unwind.
Mizuho analysts note that the consensus for the German inflation reading is 2% year-on-year.
“While the euro zone aggregate is expected to remain at 1.1%, these sorts of German numbers should assist the market in pricing a narrative that inflation is building in Europe,” they said, forecasting that Bunds would “underperform UST [U.S. Treasuries] going forward”.
Other core euro zone bond yields were also little moved while in the south of the region, yields dipped marginally .
Analysts also note that this week will also see end-of-quarter investor rebalancing of portfolios before liquidity drops during the Easter holidays. (Reporting by Saikat Chatterjee; Editing by Raissa Kasolowsky)