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Euro zone bond yields hold near recent lows

* Yields edge lower

* Italian yields hit new record low

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

LONDON, Oct 5 (Reuters) - Euro zone bond yields edged lower on Monday with investors concerned about possible new restrictions to fight the coronavirus, although signs that U.S. President Donald Trump’s health was improving lifted the mood.

Expectations for more European Central Bank stimulus before year-end and data on Friday showing euro zone inflation has sunk deeper into negative territory are keeping euro zone bond yields near their recent lows.

Italian yields hit another record low after falling on Friday following the weaker than expected inflation reading.

However, moves in bond markets have been minimal in recent weeks with volatility very low -- euro zone yields barely budged on Friday when news broke that Trump had tested positive for COVID-19 and was later taken to hospital.

Analysts say that with yields so low already there is little room for them to fall further during bouts of risk aversion.

Unicredit analysts said they did not expect a further sharp drop in long-dated German Bund yields from current levels unless risk aversion significantly increases, the COVID-19 situation deteriorates rapidly or markets start pricing in a further cut to the ECB’s deposit rate.

In early Monday trading the 10-year German bond yield stood at -0.536% while French yields also inched lower .

The French government has announced new restrictions including the closure of bars in Paris to combat rising cases of COVID-19 and other countries across Europe are weighing up more measures to arrest the spread of the virus.

The 10-year Italian yield slipped more than 1 basis point to 0.775%, another record low. (Reporting by Tommy Wilkes; Editing by Kirsten Donovan)

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