UPDATE 1-Euro zone bond yields increase, all eyes on U.S. election outcome

* Market trading is quiet as U.S. voters head to the polls

* U.S.-German 10-year yield spread near highest since March

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds details, latest prices)

LONDON, Nov 3 (Reuters) – Euro zone bond yields rose on Tuesday with markets increasingly confident challenger Joe Biden would win the U.S. presidential election, although trading was quiet as investors refrained from taking on new large positions before the outcome.

The rise in yields also followed Monday’s drop as investors rushed for safer assets in the wake of new lockdown restrictions imposed by governments across Europe to fight the spread of COVID-19.

Market participants expect a volatile day on Wednesday when the results of the United States presidential election become clear. But on Tuesday stock markets rose as investors sold out of safer bonds and bet on a clear win for Biden, the Democratic Party candidate.

President Donald Trump and Biden made a last-ditch push for votes in battleground states on Monday as their campaigns prepared for post-election legal disputes that could delay a clear outcome.

The benchmark German 10-year yield was last up 3 basis points at -0.609%, while other core euro zone bond yields rose more modestly.

“There is an expectation that there will be a Biden victory,” said Jan von Gerich, an analyst at Nordea. But he said that there was a “preparedness that there could be some big moves” on Wednesday should the result be unclear.

He said he doubted the U.S. election outcome would have much impact on euro zone bond yields, given the European Central Bank “remains in control and will keep yields near these levels”.

The ECB’s vast bond-buying scheme, designed to calm markets and stoke an economic recovery, has crushed fixed income volatility.

UniCredit analysts said that if Democrat challenger Joe Biden, wins, the spread between U.S. 2- and 10-year bond yields could widen to a new multi-month high above 70 basis points and the difference between 10-year U.S. and German bond yields move towards 155 basis points, its biggest since March.

“The main aspect of a blue wave is a higher growth and inflation outlook compared to the current status quo, in our view, with global economic policy uncertainty declining,” they said.

Peripheral yields also increased marginally, with the Spanish 10-year bond yield up 1 basis point to 0.133% . Italian 10-year yields gave up early gains and were down 1 basis point at 0.71%.

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