German yields pinned near record lows as Russia, Greek vote eyed

LONDON: Investor nervousness over Russia's gathering financial crisis and an upcoming presidential vote in Greece kept German Bund yields pinned near record lows on Wednesday.

Demand for assets perceived as safe like German Bunds accelerated on Tuesday as Russian financial markets collapsed following an aggressive rate hike by the country's central bank failed to buttress the battered rouble.

Focus was also on Greece, which holds the first of three rounds of a presidential vote later in the day that will determine whether the country is forced into snap elections and a new period of political chaos.

Adding to market uncertainty is the outcome of the U.S. Federal Reserve policy meeting later in the day as some in the market wonder whether a steep slide in oil prices will hurt the global economy and perhaps force the central bank to postpone possible interest rates hikes in 2015.

"There are a number of event risks ahead of us -- the FOMC decision and the Greek presidential vote, and investors remain nervous over events in Russia. So core government bonds continue to benefit," said Nick Stamenkovic, a strategist at RIA Capital Markets.

German 10-year yields, the yardstick for euro zone borrowing costs, were a touch lower at 0.59 percent, having plumbed an all-time low around 0.56 percent on Tuesday.

With the European Central Bank expected to signal in January the expansion of its asset purchases to include government bonds, many in the market expect the yields to fall as low as 0.50 percent in the coming month.

Greek yields were slightly lower at 9.11 percent , with this week's selloff pausing ahead of Wednesday's vote.

Analysts see the decision to bring forward the presidential election as a risky gambit that Prime Minister Antonis Samaras hopes will provide a fresh mandate for his government, but which could easily plunge the country into renewed political turmoil.

While the post of president is mainly ceremonial, failure by Samaras' nominee Stavros Dimas to become head of state is likely to trigger snap elections that could be won by the leftist, Eurosceptic Syriza party -- a prospect dreaded by investors.