* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, updates prices) July 20 (Reuters) - German bond yields fell on Tuesday to their lowest since February, pushing the entire German yield curve to the brink of turning negative as investors continued to snap up government bonds. After fears around the Delta variant of the coronavirus and the continuation of position adjustments into bonds pushed both German and U.S. Treasury yields on Monday to their lowest since February on Monday, the rally continued on Tuesday even as stock markets rose on both sides of the Atlantic. After relatively contained moves at the start of the session, bond yields in the euro area fell sharply and that accelerated following the U.S. trading session open as U.S. Treasury yields moved sharply lower. Germany’s 10-year yield, the benchmark for the euro area fell more than 5 basis points to -0.44%, the lowest since February. Two-year yields, which so far had been much more stable than the rest of the yield curve, fell nearly three basis points to -0.725% in their biggest daily fall since June 2020. The German yield curve as measured by the gap between two and 10-year yields tightened to 27 bps, the narrowest since February, a move reflecting economic uncertainty. German 30-year yields led the rally, dropping more than six bps to 0.015%. They are approaching sub-zero levels for the first time since February. A move below zero would push the entire German yield curve into negative territory. The euro area real yield, which strips out the impact of expected inflation, as measured by swaps, fell to a new record low at -1.56% “It’s not a risk story,” said Peter McCallum, rates strategist at Mizuho, noting the rise in European stocks and the relative stability of credit spreads on Tuesday. “The risk-off in equities hasn’t actually been that dramatic as to cause this kind of move. So that’s when you think there’s something else and it does make sense that people taking off (short) positions is part of it,” he added, pointing to sudden falls in bond yields in the last two sessions. Such sharp moves often happen when stop-loss orders – to buy or sell bonds when a certain level is breached – are triggered. Though lower-rated bonds of Italy, Greece and Spain rallied too, yields fell less than Germany’s, sending the gaps between their 10-year bonds and Germany’s -- effectively their risk premia -- some two bps wider each. Italy’s 10-year government bond yield fell to its lowest since April at 0.677%. The risk premium on its 10-year debt rose to the highest since July 8 at 112 bps and that on 30-year bonds rose to 166 bps, the widest since mid-May. Five-year yields were close to turning negative for the first time since April, falling as low as 0.002%. Greece’s risk premium widened to its highest since late May at 110 bps. Spain’s was at the widest since last November at 75 bps. Germany raised 3.349 billion euros from the reopening of a seven-year bond at auction earlier, which received decent demand. (Reporting by Yoruk Bahceli, Editing by Sherry Jacob-Phillips, Shailesh Kuber and Gareth Jones) Our Standards: The Thomson Reuters Trust Principles.