(Fixes typo in lead paragraph in spelling of ‘Portugal’.) * Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr LONDON, Dec 8 (Reuters) - Investors’ risk-off mood drove euro zone government bond yields lower on Tuesday, taking the cue from their U.S. counterparts, and pushing Portugal’s 10-year government bond yield below 0% for the first time on record. Benchmark German 10-year Bund yields fell as well, as the French 10-year yields dropped to their lowest since the beginning of November. Most U.S. Treasury yields were lower on Tuesday as investors tried to judge how quickly vaccines could be distributed to fight the COVID-19 pandemic. “Portuguese bonds do correlate very highly with safer assets,” said Antoine Bouvet, rates strategist at ING. Looking over a more long-term basis, the fall in Portuguese yields reflects “the continuation of the long term trend of yields going lower in the periphery, so it’s not a huge surprise,” Bouvet said. “Still, it’s a milestone and it reassures that the combination of central bank policy and European Union policy have created an environment very favourable for this bond market,” Bouvet said. Portugal’s 10-year sovereign bond yield dropped to as low as -0.01% and was trading down 2.5 basis points at -0.004%, joining the euro zone’s ever-growing pool of negative yielding debt. Yields in other peripheral markets also fell by around the same amount, as did yields in the core markets like Germany and France. The German 10-year Bund yield fell to -0.617% , while the French 10-year government bond yield dropped to -0.376%, their lowest since Nov. 9. “There’s a certain amount of positive reinforcement because the lower the yields fall, the more sustainable their debt becomes and therefore there is less of a need for a credit premium,” he added. Growing optimism over the outlook for the global economy following positive developments on a COVID-19 vaccine have provided a further boost to lower-rated Southern European bonds, already well supported by aggressive European Central Bank stimulus and expectations that the bank will expand its bond buying at this week’s meeting. Elsewhere, a two-day EU summit begins on Thursday and the bloc was ready to set up its planned EU stimulus plan without Hungary and Poland, which are maintaining their veto of the EU budget. “Over time, we and the markets have come to assume that the EU always avoids disaster at the last minute, but also that there will not be a big positive breakthrough,” Citi analysts said, flagging risks of an adverse impact on euro zone’s assets in the case of a “failure to finalise the fund”. On top of that, the U.S. Congress will vote this week on a one-week stopgap funding bill to provide more time for lawmakers to reach a deal on COVID-19 relief and an overarching spending bill to avoid a government shutdown. “The ECB bid makes the difference, keeping a lid on nominal yields, which means falling real yields as inflation expectations normalize,” Commerzbank added. Reporting by Olga Cotaga in London and Stefano Rebaudo in Milan; Editing by Bernadette Baum