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Euro zone bond yields fall after Trump threatens tariffs on China

By Yoruk Bahceli

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

By Yoruk Bahceli

LONDON, Nov 13 (Reuters) - Euro zone bond yields fell on Wednesday after U.S. President Donald Trump threatened China with further tariffs if it fails to sign a trade deal, casting a shadow over the optimism that has hurt bond markets in recent weeks.

Trump said on Tuesday dangled the prospect of completing an initial trade deal with China "soon," but offered no new details on negotiations.

He said tariffs would be raised on Chinese goods "very substantially" if China does not make a deal with the United States. "And that's going to be true for other countries that mistreat us too," he added.

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Bond yields in the euro zone have risen significantly in recent weeks optimism over a U.S.-China trade deal made safe-haven government bonds less attractive investments.

Germany's 10-year benchmark yield was up 14 basis points in November. Most 10-year bond yields were down around 2 basis points early Wednesday . Benchmark 10-year German government bond yields were at -0.27%, compared with last week's -0.22%.

"I think that's why we see slightly lower yields this morning," DZ Bank rates strategist Sebastian Fellechner said, citing Trump's speech.

He added that trade negotiations are the main trigger of the market right now and revamped trade worries confirm "yields should remain in the very negative area," given the high yields bonds have reached in recent sessions.

Investors will also be eyeing euro zone industrial production numbers due at 1000 GMT, which are expected to confirm the gloomy outlook for the euro zone economy before euro zone and German gross domestic product readings on Thursday.

Germany's economy contracted by 0.1% during the second quarter and a Reuters poll forecast that it contracted by the same amount during the third quarter.

In addition, U.S. Federal Reserve Chairman Jerome Powell will testify on the economic outlook before the congressional Joint Economic Committee at 1600 GMT.

The Fed cut its benchmark rate for the third time this year in late October, but it dropped language in its policy statement that had been considered a sign of future rate cuts. (Reporting by Yoruk Bahceli, editing by Larry King)