* Euro zone periphery govt bond yields tmsnrt.rs\/2ii2Bqr (Adds chart)<\/p>\n
LONDON, May 19 (Reuters) – Germany\u2019s benchmark 10-year Bund yield fell from a two-year high on Wednesday, as a sharp fall in digital currencies forced investors to return to safe-haven debt markets.<\/p>\n
Euro zone government bond yields had risen for much of the session on concern about the possibility of the European Central Bank slowing its bond-buying as the economy recovers.<\/p>\n
But the move in German bonds, regarded as one of the safest assets, started to reverse as a selloff in digital currencies gathered pace.<\/p>\n
Bitcoin tumbled below the $40,000 mark on Wednesday to a 3-1\/2 month low as selling in digital coins intensified after China banned financial and payment institutions from providing cryptocurrency services.<\/p>\n
The fall in Germany\u2019s 10-year yield coincided with a sharp drop in Bitcoin and Ether shortly before 1300 GMT.<\/p>\n
\u201cEther has dropped 40%, which even for a very volatile asset is quite a lot, and this is spilling over into stocks and everything,\u201d said Antoine Bouvet, senior rates strategist at ING.<\/p>\n
\u201cAs cryptocurrencies go more mainstream, more traditional investors hold them. If they lose a lot of money on them, it might force them to reduce risk and therefore to sell other risk assets.\u201d<\/p>\n
Giuseppe Sersale, fund manager and strategist at Anthilia in Milan, also attributed the bond market move to the cryptocurrency falls.<\/p>\n
\u201cSurely there is risk aversion in the equity market that comes at least in part from the cryptocurrency crash. When you start to see falls of 20 to 30%, demand for equity contracts and volatility spreads. Also because there are people here who are in at leverage. It\u2019s a shock to the system,\u201d he said.<\/p>\n
By 1341 GMT, yields had partially recovered from the drop, with Germany\u2019s 10-year yield flat on the day at -0.109%, compared to its low of -0.127%..<\/p>\n
Italy\u2019s 10-year yield was up 3 bps on the day at 1.1221% .<\/p>\n
Euro zone inflation accelerated as expected in April because of a sharp rise in the costs of energy and services, data showed. British consumer price inflation more than doubled in April.<\/p>\n
A gauge of euro zone inflation expectations – the five-year, five-year inflation forward – rose to its highest since December 2018.<\/p>\n
Wednesday\u2019s moves follow a big sell-off in euro area government bonds on Monday, driven by speculation the ECB may slow its emergency bond-buying as the economy recovers from the COVID-19 pandemic.<\/p>\n
Later in the session, the latest FOMC meeting minutes will be published. Chief economist Philip Lane is due to speak at 1550 GMT.<\/p>\n
($1 = 0.8199 euros)<\/p>\n