UPDATE 2-Euro zone bond yields drop on economic data, U.S. Treasury rally

* Euro zone Q4 data worse than initially estimated

* Euro zone bond yields drop 4-5 bps

* EU gets 61 billion euros of demand for debt sale

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices)

LONDON, March 9 (Reuters) – Euro zone government bond yields dipped across the board on Tuesday as revised data showed that the region’s economy ended 2020 worse than previously estimated, and with U.S. Treasury yields dropping before a key auction.

The euro zone economy contracted more than previously estimated in the last three months of 2020 against the previous quarter, revised data showed on Tuesday, as household consumption plunged because of COVID-19 lockdowns.

In addition, U.S. Treasuries rallied sharply ahead of a key auction, with 10-year yields – which move inversely to price – dropping by as much as 5 basis points on the day.

“The Q4 data is already quite old, but it might act as a reminder that the euro zone is going to be a laggard in terms of growth in 2021,” said ING rates strategist Antoine Bouvet.

But he added not too much should be read into the data, because stocks are up and the rally could be as much led by U.S. Treasury yields. Major government bond yields around the world tend to track each other as many investors switch between them.

Euro zone government bond yields, which have hit some of their highest levels in nearly a year recently, dipped across the board.

Germany’s 10-year government bond yield fell 2.6 basis points to -0.304%, moving further away from the one-year high of -0.203% in late February.

Other euro zone bond yields were also down between 2 and 4 basis points across the board.,

Analysts do not expect the economic gloom and the fall in yields to last as vaccination programmes progress in Europe and the United States, fuelling an economic recovery from the COVID-19 crisis.

In addition, the European Central Bank failed to increase the pace of its emergency purchases last week, missing market expectations and adding to doubts about its commitment to supporting a pandemic-stricken, debt-laden economy.

Later on Tuesday, the European Union was due to continue its emergency SURE borrowing programme by issuing 9 billion euros ($10.7 billion) of 15-year Social bonds, according to a lead manager.

Demand for the bond sale was in excess of 61 billion euros, the lead manager said in a message to investors seen by Reuters.

($1 = 0.8414 euros)

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