* Yields higher day after drop to record lows
* Escalating trade wars, dire data fuel recession fears
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices, adds comment, adds detail on Italy)
By Dhara Ranasinghe
LONDON, Aug 8 (Reuters) - The euro zone’s government bond yields nudged up on Thursday, a day after plunging to record lows on growing fears that the world economy is heading for a recession that will push central banks to deliver aggressive easing steps.
After falling for nine straight days, its longest decline since late 2015, Germany’s 10-year bond yield was up just 2 basis points at -0.56%.
It reached record lows alongside other euro zone bond yields on Wednesday, after a shock large interest rate cut in New Zealand and dire German industrial production data fuelled expectations for rate cuts and new asset purchases from the European Central Bank.
Euro zone 10-year bond yields rose 2-3 bps - a mere blip in the sharp falls that have seen a growing number of yields drop below 0% for the first time.
That comes as an increasingly bitter U.S./China trade war fuels recession fears.
Washington on Monday branded Beijing a currency manipulator for the first time since 1994 after China allowed its currency to weaken beyond 7 per dollar for the first time in more than a decade.
The prospect of recession widened the inversion between U.S. three-month bills and 10-year yields to 39 basis points on Wednesday, a level not seen since March 2007.
Long-term global borrowing rates have never been lower. The aggregate yield on a Bloomberg-Barclays index of seven- to 10-year bonds worldwide dropped to a record low 1.44% on Wednesday.
“The combination of trade war escalation, summer liquidity, expectations for more QE (quantitative easing) explain the latest move lower in bond yields and why real money investors have chased yields lower,” said Fabio Bassi, head of European rates strategy at JP Morgan.
“The result of what central banks actually deliver now and clarity on the macro impact of trade wars will set the tone going forward.”
Thursday’s bond selloff was most pronounced in southern Europe , which has benefited from the rush to grab bonds with a positive yield.
Japanese investors bought Italian bonds in June at the fastest pace in more than four years, Japanese finance ministry data showed on Thursday..
Still 10-year Italian bond yields rose 9 bps to 1.49%, also pushed up by renewed tension within the ruling coalition that could lead to its collapse or a cabinet reshuffle that would see the departure of the finance minister.
“We had another threat by Salvini that he wants some ministers removed from the government and that raises the threat of an early election,” said DZ Bank rates strategist Rene Albrecht, referring to League leader Matteo Salvini.
The League is one of two parties that make up the Italian government.
Reporting by Dhara Ranasingh, editing by Larry King