* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices) MILAN, Oct 20 (Reuters) - German government bond yields edged lower on Wednesday, reversing direction after rising in early trade amid some concerns about potential monetary tightening by the European Central Bank. Market expectations for future interest rates do not square with the European Central Bank’s guidance for no hike until inflation is seen stable at 2%, the ECB’s chief economist Philip Lane said on Tuesday. Euro zone bonds were also tracking U.S. borrowing costs. The U.S. 10-year Treasury yield rose 0.5 basis points to 1.64%, after hitting a five-month high overnight at 1.673%. Analyst views were mixed about the recent rise in euro zone yields and the impact of comments by ECB policymakers. “We might start seeing some divergence from U.S. and UK rates, with euro zone rates calming down, because central banks are in different phases of the tightening cycle,” Mohammed Kazmi, macro strategist and fixed income portfolio manager at Union Bancaire Privée (UBP), said. “The BoE and the Fed are way ahead of the ECB,” he added. Germany’s 10-year government bond yield, the benchmark for the bloc, slipped 0.5 basis points to -0.12%, after rising as high as -0.092% in early trade. The announcement of the forthcoming resignation of Bundesbank President Jens Weidmann, a relentless critic of the ECB’s ultra-easy monetary policy, had little impact on the market though one analyst said it could in the medium-term support peripheral euro zone bond prices. “It could mean more support to (ECB president Christine) Lagarde’s accommodative approach at a time when the ECB is about to decide how its monetary policy will be in the post-pandemic era,” said Antonio Cesarano, chief global strategist at investment bank Intermonte. Italy’s 10-year government bond yield fell 1.5 bps to 0.922% after hitting its highest since May at 0.96%. “Spreads with BTPs yields are holding very well, which shows that the market isn’t pricing more aggressive ECB policy. What we saw last week were just rates moving together across different regions,” UBP’s Kazmi said. The surge in inflation in the euro zone is still mostly temporary, but households and firms will start to lift their price expectations if it lasts much longer, European Central Bank policymaker Olli Rehn said on Tuesday. “It appears that market participants are getting cold feet as the ECB determination to look through current inflation pressures appears half-hearted,” Commerzbank analysts told clients. “Even super-dove Rehn was quoted saying that inflation is now in line with the ECB strategy.” The German break-even rate – a gauge of inflation expectations based on the difference in yield between the inflation-protected and nominal debt of the same maturity – is close to its highest since April 2013 around 1.75% . Reporting by Stefano Rebaudo; editing by John Stonestreet