* Eurozone Periphery Government Bond Yields tmsnrt.rs/2ii2Bqr (updated to reflect price movement, add quote)

LONDON, July 21 (Reuters) – Eurozone borrowing costs rose on Wednesday, moving away from the previous day’s multi-month lows as calm returned to European markets.

Long-term sovereign bond yields in the United States and Europe fell 6-7 basis points (bps) this week as an increase in COVID-19 variants adds to the feeling that economic growth has now reached a peak and that any resumption of inflation will prove to be transitory.

But the quick and furious movements of the last few sessions seemed to be easing for now.

European stocks rose more than 1%, while US Treasury yields rose 5 basis points in London trading.

These movements were reflected in the European bond markets, where the yield of the German 10-year Bund has reversed the first drops.

It was last traded 2 basis points higher to -0.40%. It fell to a more than five-month low on Tuesday at -0.44%.

“The measures had gone too far,” said Jan von Gerich, chief analyst at Nordea. “The markets tend to do this, but it’s dangerous to say it’s over for now until we see more stabilization.”

In the eurozone, bond yields rose 1 to 3 basis points on the day. The yield on German 30-year debt rose 3 basis points to 0.08%, after falling a striking distance of 0% on Tuesday.

Previously, Germany had sold 1.23 billion euros of 30-year bonds.

As bond markets have soared and oil prices have picked up after steep drops earlier in the week, eurozone inflation expectations have also picked up.

A key indicator of long-term inflation expectations in eurozone markets, the five-year and five-year breakeven rose above 1.60% to its highest level in two weeks.

“If we’re correct that most of these moves are driven by extreme investor positioning, rather than something more fundamental, then we’re probably near the end of the recent bond rally,” said Mike Riddell, responsible for unconstrained macro at AllianzGI. .

A note of caution was expected ahead of Thursday’s meeting of the European Central Bank (ECB). The ECB is widely expected to change its forward guidance to reflect a new inflation target following the results of a review of its strategy earlier this month.

The ECB is now targeting inflation at 2% against close to but below 2% previously.

“We have the ECB tomorrow and if they (policymakers) deliver a conciliatory message, we could have more of a rally,” said von Gerich from Nordea.

Reporting by Dhara Ranasinghe Editing by Joe Bavier and Kim Coghill

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