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* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
By Virginia Furness
LONDON, Feb 18 (Reuters) - Euro zone bond yields held near to Friday's closing levels after further dovish comments from ECB officials over the weekend offset the boost to risk sentiment prompted by stronger Asian stock markets on the back of progress in China-U.S. trade talks.
ECB policymakers Francois Villeroy de Galhau and Olli Rehn added to dovish comments from Executive Board member Benoit Coeure on Friday which raised expectations of a fresh round of stimulus from the central bank, and saw euro zone banking shares jump over three percent, the euro fall and Italy's bond yields tumble.
But while Asian shares bounced broadly on Monday as investors dared to hope for both progress at Sino-U.S. trade talks in Washington, the turn in sentiment did not prompt a big risk-on move in euro zone bond markets.
In addition, with U.S. investors out for the President's Day holiday, trading is likely to be light.
"On the one hand you have positive risk sentiment and on the other, dovish ECB remarks which are neutral," said Mathias van der Jeugt, rates strategist at KBC.
Rehn told a German newspaper that recent data pointed to a weakening euro zone economy, adding that interest rates would remain at the current level until monetary policy goals have been met.
Analysts took Villeroy de Galhau's comments to indicate that if Europe's economic slowdown appears permanent, the ECB might delay its forward guidance on interest rates.
Expectations of a fresh round of cheap funding for banks helped the bid for peripheral bonds on Monday with Italy's government bond yields extending late last week falls by around two basis points across the curve.
Italy's 10-year bond yield fell to 2.775 percent while Spain's 10-year government bond yield was also down one basis point to 1.234 percent.
Elsewhere Germany's 10-year government bond, the benchmark for the region held near to 0.10 percent having dipped as low as 0.07 percent at the end of January.
New supply is due this week. Analysts at UniCredit are predicting 20 - 23.5 billion euros of new supply this week though notes that the new issuance from France, Spain, Germany, Italy and Slovakia will be supported by 16 billion euros of redemptions from Germany, and 0.5 billion euros of coupons from Ireland, Austria and Germany.
Another point of interest is the expected syndication from Cyprus. Cyprus picked Citi, Goldman Sachs and HSBC to arrange fixed income investor meetings for a new euro-denominated deal which could come this week. (Reporting by Virginia Furness; Editing by Toby Chopra)