Euro zone periphery govt bond yields Dec 27 (Reuters) - Euro zone government bond yields rose on Monday as investors focused on central banks’ tapering while trying to assess the potential impact on markets should former ECB chief Mario Draghi leave his job as Italian prime minister. Long-dated borrowing costs eased later in the session while short-dated extended their rise, tracking moves in U.S. Treasuries read more ; the 10-year U.S. yield was down 1.5 basis points at 1.4773%. Germany’s 10-year government bond yield, the benchmark of the bloc, was up 1 bps at -0.24%, after hitting its highest level since Nov. 25 at -0.222%. Two-year yield rose 5 bps to -0.633%, its highest since Nov. 2. "I think borrowing costs will be more inclined to rise as governments can handle the pandemic, while central banks will probably need to raise rates to tame inflation," Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors, said. The Italian parliament will convene to choose a new president in January, and Draghi is the leading candidate. He said he was willing to become head of state. read more Analysts warned about a potential increase in Italian risk premium should Draghi become president as his arrival in February 2021 as a prime minister boosted confidence in the country"s debt-ridden economy. They see snap elections as the worst-case scenario as political uncertainty could hurt bond prices. Italy’s 10-year government bond yield was up 1.5 basis point at 1.143%, after rising as much as 5.5 basis points to 1.179%, its highest since Nov. 1. "From a market perspective, there cannot be a better prime minister than Mario Draghi in Italy. His credibility is unmet by any other potential candidate who might take over," Valentijn van Nieuwenhuijzen, CIO di NN Investment Partners, said. However, Germany"s expected less stringent fiscal policy approach might support peripheral bond prices in 2022 ahead of reform of the European Union"s stability pact. "Germany’s new political stance combined with the EU recovery plan provides a more supportive backdrop for peripheral bonds, which is the main reason why we don’t anticipate big shocks in the government bond market," van Nieuwenhuijzen added. On the other hand, any clash over EU budget rules that could result in more stringent fiscal management for the most indebted countries would hit peripheral bond prices, triggering a rise in their yields. Last week, France and Italy called for the European Union"s new fiscal rules not to prevent member states from making investments, arguing that the EU"s 800 billion recovery fund has been a success that should serve as a blueprint for the future. [nL8N2T83NQ] read more Euro zone yields rose recently as receding worries about the Omicron variant boosted risky assets, triggering a selloff in safe-haven bonds. But that kind of correlation might not last. "The negative correlation between stocks and bond prices (which move inversely with yields) is no longer to be taken for granted, as central banks" tapering might hurt bonds and equities the same way," Andrea Delitala, head of euro multi asset at Pictet Asset Management, said.