Coronavirus-hit markets calm down, easing demand for safe-haven Bunds

* Euro zone periphery govt bond yields

By Dhara Ranasinghe

LONDON, March 2 (Reuters) - Most euro zone government bond yields edged up from multi-month lows on Monday, as growing expectations that central banks will protect their economies from the coronavirus outbreak curbed the rush to safe-haven assets for now.

Yields on 10-year German bonds, regarded as one of the safest assets in the world, last week tumbled 18 basis points in their biggest weekly drop since 2012 as coronavirus panic swept through markets.

Central bank comments helped restore some calm as the week began. European shares opened higher and yields on higher-rated euro zone bonds rose 1 to 2 bps.

Federal Reserve Chair Jerome Powell said on Friday the Fed would "act as appropriate" to support the economy in the face of the coronavirus epidemic, though he said the economy remains in good shape overall.

On Monday, Bank of Japan Governor Haruhiko Kuroda said the BOJ would take necessary steps to stabilise financial markets.

The European Central Bank is prepared to support the economy if needed in the face of the coronavirus outbreak, although more action is not yet needed, ECB policymaker Francois Villeroy de Galhau said on Monday.

"The week ahead will depend on how seriously the market is comforted by the Fed’s message of support, and though risk assets will likely have more stability, we expect investors to remain tentative until easing is actually announced," said Peter McCallum, rates strategist at Mizuho.

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Trade in euro zone money market futures suggests that investors have brought forward expectations for when the ECB would cut rates again.

Eonia futures dated to the ECB's April meeting show a 10 bps rate cut is now fully priced in. Money markets attach around a 70% chance of a rate cut at the March meeting, which takes place next week. That's up from around 10% a week ago.

Goldman Sachs expects the Fed to cut rates as early as its March 17-18 meeting and expects a cut of a half percentage point.

Story continues

Germany's 10-year Bund yield was last up just 1 bps on the day at -0.60, just above a five-month low of around -0.63% hit on Friday.

Italian bond yields , which jumped last week as grappled with coronavirus, were lower. The gap between Italian and German 10-year bond yields was also down from last week's highs, trading at around 168 bps.

(Reporting by Dhara Ranasinghe, editing by Larry King)

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