* German Bund yield touches fresh record lows
* Portuguese, Spanish bonds also at new all-time lows
* In Italy, focus on PM news conference at 1615 GMT
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates with U.S. data, adds bullets)
LONDON, June 3 (Reuters) - German 10-year government bond yields fell to fresh record lows on Monday, driven down by a dash for safe-haven assets that also sent U.S. Treasury yields to their lowest point since 2017.
Concerns that a protracted trade war that pulls in more countries could tip the world economy into recession have rattled markets in recent days.
Last week U.S. President Donald Trump threatened to slap punitive tariffs on Mexico unless the latter halted immigration into the United States. He has also removed preferential trade treatment for India.
“The trade war is taking another leg higher which is negative in terms of global growth, demand, confidence and inflation, and also injecting a healthy dose of risk-off which is all conspiring to push U.S. yields lower,” said Richard McGuire, head of rates strategy at Rabobank.
Germany’s 10-year bond yields extended last week’s falls to touch an all-time low of -0.219%, while the gap between two- and 10-year yields was at the tightest since August 2016, a sign of worsening economic sentiment.
Yields in Europe and the United States pulled off their lows as the session wore on with stock markets erasing some of their heavy losses.
Goldman Sachs said in a note on Friday their downside risk scenario for 10-year Bund yields was -50 basis points.
Two-year U.S. Treasury yields had earlier flirted with their biggest two-day fall since October 2008, at the start of the global financial crisis.
Ten-year Treasury yields, down some six basis points earlier in the session, were last down just 2 bps at 2.13%.
Europe’s domestic politics kept downward pressure on German yields after Andrea Nahles, leader of Germany’s Social Democrats (SPD), announced she would resign after her party’s lacklustre performance in European Parliament elections.
This throws doubt on the durability of conservative Chancellor Angela Merkel’s governing coalition with the SPD.
Berenberg chief economist Holger Schmieding assigned a 40% probability that this would mark the end of Merkel’s long tenure as chancellor, which began in 2005.
Dutch bonds, also AAA-rated, rallied strongly too, with 10-year yields established in negative territory at minus 0.03% and nearing record lows of minus 0.043% hit in September 2016 .
The rally extended to the euro zone periphery, where Portuguese, Spanish and Greek bond yields also hit record lows , . Greek 10-year bond yields fell nearly 50 basis points last week.
The moves come ahead of a European Central Bank meeting on Thursday at which it is expected to extend forward guidance and offer TLTRO funding at -25bp, according to some analysts.
ITALY AWAITS PM SPEECH
Italian bond yields pulled back from earlier rises, with 10-year yields last down nine bps at 2.57%.
They rose in early trade after Italian Prime Minister Giuseppe Conte threatened to resign, Italian newspapers La Repubblica and Il Corriere della Sera reported.
He was to hold a news conference at 1615 GMT.
Italian debt sold off heavily last week after the European Commission wrote to Rome asking for an explanation as to why public debt rose in 2018 instead of falling as required.
In response, Italy has said it would respect EU fiscal rules in its next budget, despite a pledge by the anti-austerity government to cut taxes.
Reporting by Virginia Furness; additional reporting by Giselda Vagnoni in ROME and Dhara Ranasinghe in LONDON, Editing by Mark Heinrich
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