German bond yields touch fresh Feb lows as markets stabilize

* Euro zone periphery govt bond yields

July 20 (Reuters) - Germany’s 10-year yield on Tuesday fell to its lowest since February, though the moves were contained as markets looked set to calm down after previous session’s sharp risk-off that was driven by fears around the Delta coronavirus variant.

The fears pushed both German and U.S. Treasury yields on Monday to their lowest since February, with a 10-basis point drop in benchmark 10-year U.S. Treasury yields - the best daily performance since February - leading the way.

But markets were much calmer on Tuesday, with most euro area 10-year government bond yields down 1-2 basis points, while U.S. Treasury yields elevated and European stock markets opened higher after their worst session of the year on Monday.

The rise in stocks and stabilization in bond yields on Tuesday suggest that “after yesterday’s losses, investors are at least taking a breather,” UniCredit analysts told clients.

Germany’s 10-year yield, the benchmark for the bloc, briefly fell to -0.403%, breaching a new lowest level since February and was down around 1 basis point to -0.398%, as of 0733 GMT.

The euro area real yield, which strips out the impact of expected inflation, as measured by swaps, was off record lows touched on Monday.

Italian government bond yields fell nearly 3 bps to 0.68% to their lowest since April, pushing down the closely watched gap with German 10-year yields at 107 bps after a 5 bps widening on Monday.

There was no bond market reaction to German producer prices data, which showed a 1.3% increase month-on-month and 8.5% increase year-on-year. The yearly increase is set for the biggest jump since 1981 according to Refinitiv Eikon -- in another sign of inflationary pressure.

In the primary market, Germany will re-open a seven-year bond at auction, aiming to raise 4 billion euros. (Reporting by Yoruk Bahceli, Editing by Sherry Jacob-Phillips)