LONDON, April 12 Reuters Euro zone government bond yields nudged lower on Monday, holding below recent highs as markets bided their time in a key week for U.S. Treasury markets.

U.S. Treasury yields, which have stabilised in the past two weeks after a sharp rise, could get a fresh steer from auctions 96 billion of three and 10year bonds will be sold on Monday and key inflation data on Tuesday.

That is likely to set the tone for European bond markets, where yields have risen this year as well on U.S.led reflation expectations.

The large U.S. Treasury supply and the string of likely upbeat U.S. activity and inflation data this week leave U.S. Treasuries still vulnerable with spillover risks to Bunds, said Commerzbank rates strategist Rainer Guntermann.

In early trade, Germanys benchmark 10year Bund yield was down almost 2 basis points on the day at 0.31, 10 bps below almost oneyear highs hit in February.

The U.S. economy is at an inflection point with expectations that growth and hiring will pick up speed in the months ahead, but also risks if a hasty reopening leads to an increase in coronavirus cases, Federal Reserve Chair Jerome Powell said in an interview aired Sunday.

Benchmark 10year yields across the currency bloc were around 2 bps lower on the day. Italian yields pulled back from Fridays onemonth high on growing concern about possible delays in the EU recovery fund to aid the postcoronavirus recovery.

Italys 10year bond yield was last down 3.7 bps at…