Euro zone bond yields flat as markets await U.S. Senate run-off

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

LONDON, Jan 5 (Reuters) - Euro zone government bond yields were little changed on Tuesday, edging up by less than one basis point, as the market’s attention focused on the U.S. Senate run-off election in Georgia and new lockdown measures in Europe.

Equity markets fell in the Asian session after Wall Street stocks dropped more than 1% on Monday as market participants became more cautious about the run-off, which will determine the make-up of the U.S. Senate and President-elect Joe Biden’s ability to pursue his preferred policies.

“Senate election run-offs in Georgia could add to already-rising inflation expectations,” ING rates strategists said in a note to clients.

“If the recent polling and betting odd trends, in favour of Democrat candidates, continue today, then USD rates should imbed greater fiscal policy,” ING said.

“This will push 10Y US Treasuries closer to 1% and widen the rates differential with the Eurozone. Further extension of European lockdown, would also reinforce this dynamic.”

As COVID-19 cases surge, new tighter lockdown measures were announced for the UK on Monday. Italy decided to keep nationwide restrictions in place and the lockdown in Germany is also expected to be extended.

At 0823 GMT, Germany’s benchmark 10-year yield was at -0.595%, flat on the day.

Italy’s 10-year yield edged up by around one basis point to 0.528%.

In a busy day for issuance, Germany was expected to raise 6 billion euros ($7.36 billion) through a short-dated Schatz auction.

Referring to Germany’s 10-year Bund, Commerzbank rates strategists wrote in a note to clients that “supply and the Georgia Senate race could challenge 10y valuations below -0.6%.”

Ireland began the syndicated sale of a new 10-year bond that could raise around 3 to 4 billion euros, which would cover as much of a quarter of the country’s funding needs for 2021.

Italy is also expected to issue 15-year sovereign debt. ($1 = 0.8151 euros) (Reporting by Elizabeth Howcroft; Editing by Susan Fenton)