UPDATE 1-Austrian yields steady after video sting brings down govt

Eurozone government bond yields held near last week's close as investors remained risk averse, while focus turned to Austria after the collapse of its coalition at the weekend raised the chances of a snap national election. Austrian government bond yields briefly rose two basis points on Monday after a scandal triggered the government collapse just days before European elections, though the move was in line with other core eurozone bond yields.

Austrian stocks fell 1.5 percent, in line with broader stock markets. Austria's 10-year benchmark bond yield had touched a day's high of 0.24% before pulling back to 0.22%. Austrian debt largely tracks safe German Bunds, which also rose by up to three basis points before pulling back to trade largely flat on the day. Chancellor Sebastian Kurz pulled the plug on his coalition with the far-right Freedom Party on Saturday after its leader Heinz-Christian Strache, Austria's vice-chancellor, was caught on video offering to fix state contracts with a woman posing as a Russian oligarch's niece. Strache resigned.

The coalition's downfall just a week before European Parliament elections is a blow to one of the most successful of the anti-immigrant, nationalist parties that have surged across the continent and which aim to make big gains in the vote. POPULISTS UNDER PRESSURE?

"Now right-wing parties are coming under pressure and Austria's tax policies were driven by the chancellor, so now the fear of a more populist rising is being alleviated to some degree," said ING rates strategist Benjamin Schroeder. Austria's 10-year bond yield has tracked that of the German Bund which fell to 2-1/2 year lows last week on escalating trade tensions between China and the United States, Italian posturing ahead of the EU Parliament elections and poor progress in Brexit talks. It was last seen slightly up to -0.097.

Trade tensions ratcheted up again on Friday, pushing U.S. Treasury and core eurozone bond yields slightly lower as traders sought safety in high-quality assets. Italian government bond yields edged lower after another weekend of noisy rhetoric from Matteo Salvini, leader of its far-right League party.

Short-dated Italian bond yields briefly fell four basis points to 0.59% before rising to 0.63% for the two-year while its 10-year bond yield was last flat on the day at 2.67%. Comments from Italy's economy minister Giovanni Tria that the government is firmly committed to preserving financial stability went some way to temper market concerns after Salvini said Italy would breach EU rules on spending.

Italian Deputy Prime Minister Matteo Salvini, leader of the far-right League, said on Friday the European Parliament election would shake up the continent, leading to a relaxation of budget rules and influencing the choice of the next European Central Bank chief. Analysts expect plenty more rhetoric ahead of the vote.

Also in focus is the Netherlands, which is expected to issue the first AAA-rated sovereign green bond on Tuesday.