(Recasts with latest market action, adds analyst comments, background) Aug 30 (Reuters) - Euro zone bond yields fell on Monday, tracking a downward move in U.S. Treasuries, after showing little reaction as German inflation rose to a fresh 13-year peak. U.S. yields moved lower after Fed Chair Jerome Powell explained on Friday why there is no rush to tighten monetary policy, with investors looking ahead to the release later this week of the August employment data. The 10-year Treasury yield is down 2 basis points. “U.S. Treasuries are currently driving the market,” Anna Guglielmetti, head of institutional portfolio management Italy at Credit Suisse, said. “In the euro zone supply is one of the main issues; but it’s not expected to impact yields this week as supply net of redemptions and coupons will be almost neutral,” she added. Bond issuance picks up this week, with 29.5 billion euros ($34.8 billion) of issuance expected from the Netherlands, Italy, Germany, France and Spain - the highest since mid-July - according to Commerzbank analysts. But 48.3 billion euros of redemptions and coupon payments from Germany and Italy will keep net supply negative, they said. By 1521 GMT, Germany’s 10-year yield, the benchmark for the euro area, fell 2 basis points to 0.44%. Italian 10-year yield was down 2.5 bps at 0.62%. Preliminary data showed German inflation increased to 3.4% year-on-year and 0.1% month-on-month in August. “The lack of reaction is due to the fact that the bond market reads these figures as transitory,” said Althea Spinozzi, fixed income strategist at Saxo Bank. The rise in German annual inflation was mainly driven by base effects such as a temporary reduction in value-added tax last year, she said. “Monthly figures are within expectations and moderate,” Spinozzi added, noting that the monthly rise in prices was the lowest since November 2020, suggesting inflation may be cooling. Spanish EU-harmonised consumer prices rose 3.3% year-on-year in August, while analysts polled by Reuters expected the number to remain unchanged. Other data showed euro zone economic sentiment dipped from record highs in August, though selling price expectations in industry hit a record in August, heralding likely future inflationary pressures. Bond markets are closely focused on inflation readings this year. Though inflation in the euro area came in above the European Central Bank’s 2% target in July and upcoming readings - starting with the 2.7% year-on-year figure expected for August on Tuesday - are likely to show it increase further, it is largely seen as transitory. Earlier in the session, ECB policymaker Francois Villeroy de Galhau said the bank should take account of a recent improvement in financing conditions in discussing the future of its pandemic emergency bond purchases. ($1 = 0.8477 euro) (Reporting by Yoruk Bahceli in Amsterdam and Stefano Rebaudo in London Editing by Andrew Heavens and Matthew Lewis) Our Standards: The Thomson Reuters Trust Principles.