(Updates with Russia headlines, mid-morning trading)
By Amanda Cooper
LONDON, Nov 19 (Reuters) - Euro zone government bond
yields lurched lower on Tuesday, driven by a rush of safe-haven
buying on the back of fresh warnings from Russia about
retaliation for any attacks on its soil or that of its allies.
President Vladimir Putin said Russia could consider using
nuclear weapons if it was subject to a conventional missile
assault supported by a nuclear power, after U.S. President Joe
Biden allowed Ukraine to fire American-made long-range missiles
deep into Russia.
German 10-year yields fell by as much as 10.3
basis points to a low of 2.269%, briefly set for their biggest
one-day fall since mid-June. Bunds were last yielding 2.304%,
down 7 bps on the day.
Fixed income investors are already juggling intensifying
tensions between Russia and the West - which has driven up oil
and gas prices this week - with the implications of Republican
President-elect Donald Trump's return to the White House for the
global economy, trade and inflation.
Tuesday's headlines out of the Kremlin, on the 1,000th day
since Russia invaded Ukraine, added to the nervousness.
"The situation there is getting more and more tense," ADM
Investor Services chief global economist Marc Ostwald said.
"At the moment, there are a lot of 'known unknowns' ...
what's happening with Russia and Ukraine, the Americans
basically saying it's okay to fire some missiles into the Kursk
region, Russia regurgitating its nuclear stuff, which always
scares people a lot, unsurprisingly. What are we to make of
Trump 2.0? And then the whole rate outlook," he said.
Two top European Central Bank policymakers signalled on
Monday they were more worried about the damage that any new U.S.
trade tariffs would do to economic growth in the euro zone than
any impact on inflation.
Two-year Schatz yields, which are the most
sensitive to changes in ECB rate expectations, were last down 5
bps on the day at 2.115%.
A final reading of October harmonised inflation for the
European Union showed core price pressures rose in October at an
annual rate of 2.7%, in line with a Reuters poll.
Right now, markets fully expect a 25-basis point drop in
rates next month and are close to pricing in a 20% chance of a
50-bp cut.
Later this week, euro area negotiated wage figures are due
on Wednesday and regional purchasing manager surveys (PMI) on
Friday.
"A 50-bp cut for December is still on the table and Friday's
PMI report could be the missing piece of the puzzle to make that
happen," ING strategists Michiel Tukker and Benjamin Schroeder
said.
Elsewhere, Italian 10-year yields were down 2.4
bps at 3.548%, while two-year yields were down 1.7
bps at 2.611%.
Greek bond yields staged a sharp push lower,
down 7 bps to 3.18%, helped by Prime Minister Kyriakos
Mitsotakis on Monday saying Athens will continue repayments of
bailout loans ahead of schedule in 2025.