* German Bund yield holds above 2-1/2 year low
* Netherlands sees strong demand for first green bond
* Italian yields drop 6-8 bps ahead of EU elections
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, updates prices)
By Dhara Ranasinghe
LONDON, May 21 (Reuters) - Government bond yields in much of the euro zone steadied above recent multi-year lows on Tuesday, with investors still reluctant to sell fixed income given heightened concern about economic growth and trade tensions.
The Netherlands launched its first green bond, raising almost six billion euros ($6.7 billion) after getting more than 21 billion euros in bids. The new 20-year bond is the first from a triple-A rated sovereign.
Bond issues in general from the single currency bloc have seen strong demand this year given a backdrop of weak economic growth and expectations that the European Central Bank will maintain an ultra-easy monetary policy stance for some time.
After sharp yield falls last week on renewed U.S./China trade tensions and Brexit uncertainty, bond markets have stabilised just ahead of the next big risk event - European parliament elections that kick off from Thursday.
In addition, a perception that central banks will have to take further action to shore up growth and concern that global trade tensions may become protracted mean any rise in yields appears limited for now.
Australia’s central bank said on Tuesday it would consider cutting interest rates next month.
“The market was caught by surprise last week by the sudden deterioration in the U.S./China trade talks and as things stand there is reason to feel pessimistic,” said John Davies, G10 rates strategist at Standard Chartered Bank in London.
“So now we are in a bit of wait-and-see territory here, with political risk this week quite big.”
Italian yields dropped between six and eight basis points, helped by the broader improvement in sentiment and opinion polls that suggested deputy prime minister Matteo Salvini’s far-right party would not do as well as previously expected in the European Parliament election.
Investors worry a strong showing for Salvini’s party could embolden him in another showdown with the European Union over Italy’s public spending plans.
Germany’s benchmark 10-year government bond yield rose nearly 2 basis points on the day to minus 0.07%, off 2-1/2 year lows but still down almost 10 bps this month.
French and Dutch 10-year bond yields have also nudged up from last week’s 2-1/2 year lows but remain well below levels of early 2019 .
The Organisation for Economic Co-Operation and Development (OECD) trimmed its global economic growth forecasts for 2019.
The OECD’s euro zone growth forecasts, however, were nudged higher.
“The market seems hesitant to take a brighter outlook on the economy even though the data is stabilising and the OECD euro zone growth forecasts were marginally higher,” said Commerzbank rates strategist Rainer Guntermann.
Elsewhere the success of the Dutch green bond reflected growing interest in green investments.
Green bonds make up a small fraction of the overall bond market, but interest has soared as banks, sovereigns and companies look to tap into increasing investor appetite.
“It shows that issuers and investors are increasingly interested in the broad ESG (environmental, social, governance) universe and it’s just going to grow from here,” said Ross Hutchison, a bond fund manager at Aberdeen Standard Investments in Edinburgh, referring to the Dutch bond sale. ($1 = 0.8968 euros)
Reporting by Dhara Ranasinghe Additional reporting by Tommy Wilkes Editing by Andrew Heavens/Andrew Cawthorne/Susan Fenton