* Netherlands, Italy to auction bonds
* Heavy week of bond supply
* U.S. Feb inflation data also due out
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, March 13 (Reuters) - Euro zone government bond yields were largely steady on Tuesday, as investors braced for the first wave of this week’s hefty bond supply as well as U.S. inflation data that could provide clues on the pace of monetary tightening from the Federal Reserve.
Bond markets in the single currency bloc have been well supported since last Thursday’s European Central Bank meeting, with policy makers stressing that interest rates will remain low for some time even as the bank takes tentative steps towards exiting its massive stimulus scheme.
Having fallen to one-week lows on Monday, Germany’s 10-year bond yield was flat at around 0.63 percent in early Tuesday trade - in line with its euro zone peers.
“The market looks very well supported at the moment. The U.S. remains the main risk for the market in terms of a negative spill over,” said Commerzbank rates strategist Michael Leister.
“For 10-year (German) bond yields to fall below 0.60 percent, we need another strong trigger.”
Further falls in borrowing costs were also seen as limited for now as markets prepare to absorb up to 30 billion euros worth of new supply this week - something that often puts upward pressure on bond yields.
The Netherlands and Italy hold bond sales later in the session.
The Italian bond sale, which includes a new 7-year bond, could be a test of investor appetite towards Italian debt in the wake of the inconclusive March 4 election.
On Monday, the caretaker leader of Italy’s ruling Democratic Party said the party should go into opposition after its bruising election defeat and resist calls to participate in the next government as a junior partner.
U.S. inflation data due later in the day was also in focus for clues on the pace of Federal Reserve interest rate rises this year.
Analysts polled by Reuters forecast the U.S. consumer price index rose 2.2 percent in February year-on-year, compared with a 2.1 percent rise a month earlier.
“In bond markets, focus today is solely on the U.S. CPI release, where we see the surprise risk for the core reading as being on the downside,” analysts at UniCredit said in note. (Reporting by Dhara Ranasinghe Editing by Andrew Heavens)