German 10-year government bond yields below zero

German bond yields

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”.

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A European Union (EU) flag flies outside of the headquarters of the European Central Bank (ECB) in Frankfurt, Germany, on Wednesday, Aug. 1, 2012. As Denmark experiments with official interest rates below zero, European Central Bank President Mario Draghi is getting a glimpse of how extreme monetary policy decisions play out in real life. Photographer: Hannelore Foerster/Bloomberg
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