Continuing market volatility and the so-called ‘flight to safety’ by investors worldwide has seen yields on the 10-year government debt of Germany dip below zero for the first time on record.
The yield on the bond fell to -0.001% from around 0.002% in early trading on Tuesday morning. Markets continue to be highly volatile as UK opinion polls suggest that the odds are narrowing on a vote for ‘Brexit’ on June 23 when British voters decide whether the country will remain in the European Union (EU).
The 10-year bund is the latest German government debt that offers a zero or negative yield. Last week, Germany’s Commerzbank AG estimated that almost two-thirds of outstanding German sovereign debt now yields below -0.4%. The move lower has been contributed to by the European Central Bank’s (EU) massive bond buying programme, as part of its quantitative easing (QE) measures that aims to reduce financing costs across the Eurozone.
An analysis issued by Rabobank read: “Ten-year bund yields are moving relatively comfortably into negative territory as the countdown continues towards the UK’s June 23 referendum [amid] hedging demand and safe haven flow.
“As it stands, our year end forecast for 10-year bund yields stands at -10bp. The risk to these projections is slanted toward the downside”.
The European Central Bank will extend its quantitative easing programme for nine months beyond next March, but scale back the level of bond buying from €80bn to €60bn a month.
The agreement, after three years of debate, raise questions on future investment demand, but Fitch Ratings doesnʼt anticipate major market disruption.
The European Commission fined Credit Agricole, HSBC and JPMorgan Chase a total of €485m for manipulating the price of the financial benchmark.
Issuers should seek more engagement with investors, explain better how they generate value, and work with investors on a Swiss code of accountable governance, suggests a white paper.