* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices, adds background) LONDON, March 1 (Reuters) - Benchmark German government bond yields dropped for a second consecutive session on Monday as investor sentiment improved after reflationary bets led bond markets to their biggest monthly selloff in years. The rise in bond yields last month, spurred by U.S. fiscal stimulus hopes and a post-pandemic economic rebound that could fuel inflation, reverberated around the world. Investors said the surprising selloff resembled the “taper tantrum” of 2013, when hints that the U.S. Federal Reserve might slow its money-printing triggered an exodus from bonds. Policymakers moved to dispel concern that they might tighten policy soon. Australia is widely expected to adopt a cautious stance at Tuesday’s policy meeting and European Central Bank executives warned against withdrawing policy support too early in the economic recovery. Consequently, yields fell broadly. Some of the recent rise in bond yields is unwarranted and the European Central Bank must push back using the flexibility embedded in its bond purchase programme, ECB policymaker Francois Villeroy de Galhau said on Monday. Last week the ECB slowed its net purchases of debt even as borrowing costs jumped. Yields on ten-year U.S. Treasury yields fell 2 basis points to 1.43% on Monday. On Thursday, it touched 1.614%, the highest in a year, rocking world markets. “We will probably see stabilising sovereign yields this week, which should give investors a sigh of relief after the past week’s tumultuous market environment,” said Ipek Ozkardeskaya, a senior analyst at Swissquote. German government bond yields also retreated. Yields on 10-year securities fell to -0.33%, setting their biggest daily fall since June 2020. Also Italy’s 10-year government bond yield set its biggest daily fall since June, down 10 bps to 0.67%. Monday’s drop comes after Germany’s 10-year yields , the region’s benchmark, saw a 26 basis-point rise, their biggest monthly rise since January 2018. Some of the biggest moves were in the shorter end of the curve with five-year U.S. Treasury yields jumping 20 bps last week, its biggest weekly rise since October 2019. “I think certainly the 2-year-5-year sector was overcooked last week amidst all the tumult as global central banks will not raise rates for a while,” Kenneth Broux, a strategist at Societe Generale, said. Ten-year Southern European government bond yields, which have also risen rapidly also retreated, falling 5 to 10 bps across the curve. Some of the biggest moves in global bond markets took place in Australia where benchmark yields on ten-year debt fell by a massive 20 bps, a day before a central bank’s policy meeting.