UPDATE 2-Euro zone bonds calm ahead of ECB

* Euro zone yields slightly lower

* German “real” yields below recent highs ahead of ECB meeting

* U.S. inflation remains tepid (Recasts first paragraph, updates prices, adds background)

AMSTERDAM, March 10 (Reuters) – Euro zone bond yields were slightly lower on Wednesday, a day ahead of the bloc’s central bank meeting.

Euro area government bond yields edged down after U.S. data showed underlying inflation remained tepid.

Borrowing costs have calmed in recent sessions, after the German 10-year benchmark saw its worst performance in years alongside many other government bonds in February, pulled up by rising U.S. Treasury yields on bets that a vast stimulus package would reawaken inflation.

Though the rise in European yields is seen as less justified given a weaker economic outlook, euro area yields closely track moves in the United States.

On Wednesday, euro area yields — which move inversely with prices — were lower, with Germany’s 10-year yield down about 0.5 basis point to -0.31%, while Treasuries yields were flat.

Euro area government bonds held a dovish tone ahead of Thursday’s European Central Bank policy meeting, where focus will be on the bank’s messaging after it did not raise its emergency bond purchases during the recent sell-off.

But, despite the lack of direct intervention, verbal intervention appears to have helped.

Germany’s inflation-adjusted “real” yields — which cause worry when they rise as this tightens financial conditions — have fallen since ECB chief Christine Lagarde said the bank is closely monitoring the rise in bond yields the week before last and various other policymakers weighed in.

“In real terms, verbal intervention was enough. Financial conditions haven’t really tightened. The ECB should be happy,” Anders Svendsen, chief analyst at Nordea told clients.

Still, Germany’s real yield, while deeply negative, is about 20 basis points higher than it was at the start of February.

The inflation reading came as the U.S. Treasury holds a 10-year bond auction, after a three-year sale was well received on Tuesday, in contrast to recent sales that saw poor appetite.

In the euro area primary market, Portugal raised 1.25 billion euros from an auction of bonds due in 2027 and 2030, with the yield turning positive on the 10-year sale.

Germany raised 3.26 billion euros from a five-year auction. ($1 = 0.8413 euro)

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