* Eurozone periphery government bond yields tmsnrt.rs/2ii2Bqr

MILAN, July 19 (Reuters) – Eurozone government bond yields fell on Monday ahead of Thursday’s European Central Bank (ECB) policy meeting, as concerns over the Delta variant of the coronavirus grew continued to weigh on the feeling of risk.

ECB policymakers are poised for a showdown as they chart a new political course, with disagreements over the economic outlook and therefore over the level of stimulus, mainly in bond purchases, needed.

The German 10-year bond yield fell 1 basis point, after hitting a new low since March 29 at -0.369%.

The yield on the European Union bond issued in June remained stable after falling to an all-time low of -0.114%.

“The ECB meeting takes center stage because it promises to be different, controversial and with tangible political implications,” Commerzbank analysts told clients.

“While other sources could become a factor as they are likely to be more biased on the hawkish side, the potential for a setback appears limited with surveys suggesting relatively moderate expectations of tangible change,” they added.

Deutsche Bank economists expected “some changes in forecasts and communications regarding the new average inflation targeting unveiled earlier this month.”

The phasing out of the Pandemic Emergency Purchase Program (PEPP), which will end in March 2022, and possible changes to the Asset Purchase Program (APP) are expected to take center stage in the future. next days and probably weeks.

“ECB President Lagarde’s remark that the outcome of the PEPP could be followed by a transition to a new format is already causing mad speculation in some quarters ahead of Thursday’s meeting,” DZ Bank analysts said.

Italian bonds, which could suffer from reduced flexibility in the ECB’s purchases once the PEPP ended, came under selling pressure as the 10-year bond yield rose by one basis point to 0.71%.

Investors expected volatility and possible yield increases to be brought under control, as the net issuance left to private investors will be significantly negative after the ECB purchases.

Meanwhile, the Federal Reserve’s dovish comments will cap U.S. Treasury yields in the near term – which were down one basis point at the start of trading in London on Monday.

Uncertainty about the economic impact of the COVID-19 pandemic has also remained in the minds of traders.

In self-isolation after being exposed to someone with the virus, British Prime Minister Boris Johnson ended more than a year of restrictions in England and trusted in vaccines. Meanwhile, Australia and some Asian countries have extended restrictions. (Reporting by Stefano Rebaudo; Editing by Toby Chopra)

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