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UPDATE 1-German Bund yields fall on safety bid before Powell speech

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Recasts to lead with move in German Bunds, updates throughout)

LONDON, Aug 27 (Reuters) - Germany’s benchmark 10-year Bund yield fell on Thursday, reversing some of this week’s gains, as investors headed back into safe assets before a speech by U.S. Federal Reserve Chair Jerome Powell.

World bond markets have sold off in the past three days, with German and U.S. Treasury yields rising to week-and-a-half highs in the face of new bond supply, hopes for a coronavirus treatment and brighter European data.

But prices rallied on Thursday, pushing yields down in what analysts said was probably covering of short positions before Powell’s virtual speech to the Jackson Hole symposium at 9:10 a.m. EDT (1310 GMT).

Bond supply in the euro area has started to pick up after a summer lull, but with no big auctions scheduled for Thursday, yields across the euro zone headed lower.

“We expected bonds to benefit from short-covering ahead of the Jackson Hole event risk, and as this week’s supply slate draws to a close,” said Antoine Bouvet, senior rates strategist at ING.

Germany’s benchmark 10-year Bund yield fell 4.5 basis points to -0.46%, down from a week-and-a-half high the day before around -0.39%. It was set for its biggest daily drop in four weeks.

Italian bond yields were also lower, with 10-year yields down around 4 bps at 1.05% and below this week’s thee-week highs.

Powell is expected to discuss the results of the Fed’s framework review to explore how monetary policy should be adapted for a low interest rate environment.

The Fed chief may lay out a case for why higher inflation over the long term is good for the economy.

“We think the Fed’s message is clear: it will want to keep rates low across the yield curve, in line with its desire to keep financial conditions ultra-loose until its policy objectives have been met,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

European Central Bank chief economist Philip Lane is also scheduled to speak later in the session. His comments are likely to be followed closely before the ECB’s September meeting.

“We see room for a dovish surprise from the Powell and Lane speeches,” said ING’s Bouvet. (Reporting by Dhara Ranasinghe; editing by Raissa Kasolowsky, Larry King)

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