* ECB’s Draghi and Weidmann due to speak
* Bund yields set for biggest weekly fall since Oct ECB
* US yield curve close to flattest in 10-years
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, Nov 17 (Reuters) - Borrowing costs in Germany were set on Friday for their biggest weekly fall since the European Central Bank’s meeting three weeks ago sparked a sharp rally across euro zone bond markets.
After a heavy selloff at the tail end of last week, buying of euro zone bonds has resumed this week, with safe-haven German debt boosted by selling of risk assets and a fall in oil prices which has weighed on investors’ inflation expectations.
Oil prices were set for their first weekly fall in six weeks, under pressure from surging U.S. supplies and doubts over Russian support for continuing a cut in crude output.
German 10-year Bund yields were steady at around 0.38 percent in early Friday trade, in line with their euro zone peers.
They have fallen almost 4 basis points this week, however, the biggest weekly fall since Oct. 26, when the ECB extended its asset-purchase scheme well into 2018, albeit at a reduced pace, cheering bond markets where the bank’s ultra-loose monetary policy has pinned down borrowing costs.
“Yields have moved to the downside again this week driven by some investors taking the opportunity to buy bonds after the selloff last week,” said DZ Bank rates strategist Daniel Lenz.
“The significant drop in oil prices has also played a role since that has lowered inflation expectations.”
The five-year, five-year breakeven inflation forward, a key gauge of long-term market inflation expectations in the euro area followed by the ECB, has pulled back from 8-month highs hit earlier this week just above 1.7 percent.
In Germany, Chancellor Angela Merkel’s efforts to forge a three-way ruling coalition could last all weekend after the parties missed Merkel’s Thursday deadline and failed to reach agreement on key issues such as migration and finances.
The news appeared to have little immediate impact on the bond market, with analysts said the main focus remained ECB policy.
ECB chief Mario Draghi and German Bundesbank head Jens Weidmann are scheduled to speak on Friday.
In the United States, two-year Treasury yields hit a nine-year high on Thursday as risk appetite recovered globally and a batch of neutral to solid economic reports put the Federal Reserve on track to raise interest rates in 2018.
The rise in two-year yields pushed the curve to its flattest in a decade.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Reporting by Dhara Ranasinghe; Editing by Toby Chopra