LONDON: Government bonds and the Japanese yen rallied on Tuesday as investors flocked to safe-haven assets after President Vladimir Putin updated Russia's nuclear doctrine amid escalating tensions with the United States over Ukraine.
Putin said Russia could consider using nuclear weapons if it was subject to a conventional missile assault supported by a nuclear power, after the United States allowed Ukraine to fire American-made long-range missiles deep into Russia.
Government bond yields dropped as prices rallied, with analysts, investors and traders pointing to Putin's statement and the spike in tensions.
The 10-year U.S. Treasury yield was last down 5 basis points (bps) to 4.3648 per cent, around its lowest in three weeks.
Germany's 10-year yield was last down 7 bps at 2.303 per cent.
Meanwhile the Japanese yen, long seen as a safe haven at times of stress, rallied 0.6 per cent to 153.69 per dollar.
"The market's movement appears to be driven by this morning's news 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 various asset classes, with a strong bid in the dollar, Swiss franc, and even to some extent in gold."
The Swiss franc rose around 0.4 per cent against the euro , while the dollar index picked up by 0.25 per cent to 106.40. Gold was last up 0.8 per cent at US$2634 per ounce.
European shares extended losses, sending the region-wide STOXX 600 index down 1 per cent to a more than three-month low.
A gauge of euro zone equity volatility spiked more than three points to a two-week high.
U.S. stock futures fell, with those for the S&P 500 down 0.5 per cent.
Analysts and a trader also pointed to a report from Ukrainian news agency RBC Ukraine citing a military official as saying Kyiv had carried out its first attack inside Russia with an ATACMS missile.
"Seeing clear risk-off moves on the Russian nuclear doctrine change and Ukraine ATACMS attack within Russia headlines," said Arne Petimezas, director of research at AFS Group in Amsterdam.
Ukraine's sovereign dollar bonds
shed nearly 2 cents.
Investors on Tuesday were also awaiting President-elect Donald Trump's pick for Treasury secretary, with the pool widening to include Apollo Global Management Chief Executive 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 moves" in the yen exchange rate.