Euro zone bonds steady ahead of U.S. payrolls

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

By Yoruk Bahceli

May 7 (Reuters) - Euro zone bond yields were broadly unchanged on Friday as traders awaited employment data out of the United States for further clues about the economic recovery from the coronavirus pandemic.

U.S. non-farm payrolls data will be released at 1230 GMT, which a Reuters poll suggests will show that nearly 1 million jobs were added to the economy in April.

Germany's 10-year yield, the benchmark for the region, was up less than 1 basis point to -0.23% at 0708 GMT.

"Regarding today's U.S. payrolls number, the Fed's (Chairman Jerome) Powell has largely taken the excitement out of today's anticipated strong reading as he will want to see a series of good readings before contemplating any changes," ING analysts told clients.

Analysts note that Treasury yields in particular, which are closely correlated with German bonds, have failed to rise much on recent strong data releases.

While data continues to indicate signs of economic recovery, U.S. Treasury yields have failed to return to the pre-pandemic highs they briefly touched in March.

German bonds have underperformed as the euro area catches up with vaccinations, with the 10-year German yield recently rising to its highest since March 2020.

Jens Peter Sorensen, chief analyst at Danske Bank, expects range-bound trading to hold in both U.S. and euro zone bonds in the shorter term, given central bank support and stabilisation in market-based gauges of inflation expectations.

Later on Friday Moody's will review Italy's credit rating. Commerzbank analysts expect it will reaffirm the rating, currently one notch above junk.

Italian bond yields also steadied after a rumour that the sovereign would launch a 30-year bond triggered a sell-off on Thursday.

That had added to recent underperformance driven by an overhang of additional issuance and uncertainty around the future of the European Central Bank's pandemic emergency bond buying programme.

Moody's follows S&P, which in April reaffirmed Italy's BBB rating -- two notches above junk and the highest out of the main rating agencies -- as it balanced the pandemic-related deterioration of Italy's finances against European Central Bank and European Union support. (Reporting by Yoruk Bahceli Editing by Gareth Jones)