It may be recalled that Putin said Russia could consider using nuclear weapons if it were subject to a conventional missile attack backed by a nuclear power, after the United States allowed Ukraine to fire long-range US-made missiles into Russia.
The yield on the 10-year US Treasury bond falls 5 basis points (bps) to 4.3648%, near its lowest level in three weeks. The yield on the 10-year German bond drops 7 bps to 2.303%.
Safe haven currencies rise
Meanwhile, the Japanese yen, traditionally considered a haven in times of stress, rose 0.6% to 153.69 per dollar. “The market move appears to be driven by news this morning about changes to Russia’s nuclear doctrine,” said Michael Weidner, co-head of global fixed income at Lazard Asset Management. “The market is reacting strongly now. This safe haven trade is evident across several asset classes, with strong demand in the dollar, Swiss franc and even to a lesser extent gold.“
The Swiss franc rose about 0.4% against the euro, while the dollar index rose 0.25% to 106.40. Gold rose 0.8% to $2,634 per ounce. European stocks extend losses, sending the region’s STOXX 600 index down 1%, its lowest level in more than three months.
A gauge of euro zone stock volatility rose more than three points to a two-week high. US stock futures fell, with those for the S&P 500 down 0.5%.
The data analyzed by the market
Analysts and a trader also pointed to a report by the Ukrainian news agency RBC Ukraine that quoted a military official as saying that kyiv had carried out its first strike inside Russia with an ATACMS missile. “We see clear risk moves in the headlines about the change in Russian nuclear doctrine and the Ukrainian attack with the ATACMS missile inside Russia,” said Arne Petimezas, research director at AFS Group in Amsterdam. Ukrainian sovereign bonds in dollars lost almost 2 cents.
On Tuesday, investors also awaited President-elect Donald Trump’s pick for Treasury secretary, with the field of candidates expanding to include Apollo Global Management CEO Marc Rowan and former Federal Reserve Governor Kevin Warsh. The Japanese yen was also supported by comments from Japanese Finance Minister Katsunobu Kato, who reiterated on Tuesday that the government would respond “appropriately to excessive movements” in the yen exchange rate.
The dollar started the European session slightly higher as investors closely watch Trump’s search for a new Treasury secretary. Among the names being considered are Marc Rowan, CEO of Apollo Global Management (APO.N), and Kevin Warsh, former governor of the Federal Reserve.
Analysts have noted that Warsh is considered less protectionist than the other candidates. The increasing likelihood that he could get the job may have been a significant factor in the intraday rally in Treasuries on Monday, they say.
Source: Ambito
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