Germany’s 10-year government bond yields tumbled below zero for the first time on record as a weakening global economic outlook fuels demand for perceived havens.
The nation joined Japan and Switzerland in having 10-year bond yields of less than zero. The plunge in yields, which has been driven by European Central Bank’s policy of negative interest rates and asset purchases, has accelerated after the weakest U.S. payrolls data in almost six years was reported June 3, and as polls indicate Britain’s vote on remaining or exiting the European Union is too close to call.
“Nobody buys bunds at these yield levels thinking they are attractive,” said Jussi Hiljanen, head of European macro- and fixed-income strategy at SEB AB in Stockholm. “Demand for haven assets is being driven by fear of Brexit and growth concern. Investors are buying bunds as a hedge against uncertainty.”
Benchmark German 10-year bund yields fell two basis points, or 0.02 percentage point, to 0.002 percent at 8:51 a.m. London time, after touching minus 0.004 percent, the least since Bloomberg began collecting the data in 1989. The 0.5 percent security due February 2026 rose 0.215, or 2.15 euros per 1,000-euro ($1,125) face amount, to 104.815.
Yields Tumble
While the collapse in yields is good news for governments that are reaping lower borrowing costs and in some cases command a fee to hold investors’ money, it’s a sign that even after pouring in record amounts of stimulus, central banks are still struggling in their efforts to boost growth and inflation.
The securities join the more than $2.8 trillion of euro-region debt that already has yields below zero, according to the Bloomberg Eurozone Sovereign Bond Index, meaning investors who buy the debt now and hold its to maturity will receive less than they paid.
The German 10-year yield has slid from 0.63 percent at the end of 2015. So far the drop in yield isn’t showing signs that it will ignite a reversal similar to what happened in April last year, when the previous record was followed by a selloff that pushed yields up by a full percentage point in less than two months.
The ECB began its asset-purchase program, or quantitative easing, in March 2015 to help push annual consumer-price growth closer to its goal of just under 2 percent. Prices have declined on an annual basis the past two months and the inflation rate hasn’t touched 2 percent in more than three years. The Frankfurt-based central bank boosted its monthly bond purchases this year and officials are now committed to buying 80 billion euros a month until at least March 2017.
Source: Bloomberg
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