July 16 (Reuters) - Euro zone government bond yields fell on Friday as concerns about the pandemic dampened risk sentiment while markets sought direction ahead of next week’s European Central Bank meeting. In the absence of major euro area data releases on Friday, and with ECB policymakers entering their silent period ahead of next Thursday’s meeting, analysts said government bond yields would be driven by news around the coronavirus. “The spread of the more infectious Delta variant is the key emerging threat for the time being, with COVID-19 cases on the rise again at the global level and in most of the G7 economies,” Deutsche Bank strategist Jim Reid said. On Friday, Germany’s 10-year yield, the benchmark for the bloc, fell 2 basis points to -0.348%, after falling below -0.35% for the first time since late March. Italy’s 10-year yield fell as low as 0.696%, a fresh April low, with the closely watched premium it offers over 10-year German bond yields at 105 bps. It has struggled to hold below 100 bps this week. German and Italian government bond yields were set to end the week lower for the third week in a row. Dovish commentary from U.S. Federal Reserve chairman Jerome Powell this week pushed yields down further, adding to last week’s sharp rally, when bets against rising U.S. Treasury yields were unwound with growth assumptions coming under question. Analysts expect euro area bond yields to remain suppressed in the weeks ahead, given the supply outlook for the bloc. UniCredit analysts expect debt management agencies to issue around 50 billion euros in the next four weeks, half of the issuance over these last four weeks, which will be more than offset by upcoming redemptions and coupon payments. “With supply slowing down noticeably and net issuance about to turn decisively negative over the next couple of weeks, the hunt for yield looks set to continue, then also capturing non-core curves again, as long as the ECB does not fail to deliver,” Christoph Rieger, head of rates and credit research at Commerzbank, said. In data, the final June euro zone inflation reading came in at 1.9% year-on-year, slowing from 2% in May and confirming an initial estimate. U.S. retail sales unexpectedly increased in June as demand for goods remained strong. U.S. consumer sentiment fell sharply and unexpectedly in early July to the lowest level in five months as inflation worries dented confidence in the economic recovery.