Highlighting a willingness among investors to hold top-rated debt even as yields across the world collapse, Germany became the second G-7 nation after Japan to issue 10-year bonds with a negative yield.

Fetching the lowest average yield on record for such paper at -0.05 percent, Germany’s 10-year government bond yield turned negative for the first time at an auction.

Ten-year yields in Germany hit a record low last week at around minus 0.20 percent and have been trading below zero percent in the secondary market for the past three weeks.

Investors buying the 10-year Bund and holding it to maturity would receive back less than they paid to buy the bonds was meant by the negative yield. Against the backdrop of global uncertainty, unprecedented monetary stimulus from the European Central Bank and a tepid inflation outlook, even the negative rates was a trade-off that many investors are willing to make to hold safe-haven German paper.

“This auction is a symptom of what we’re seeing globally. We are in a positive market environment for bonds right now and investors remain relatively long German Bunds,” said Orlando Green, European fixed income strategist at Credit Agricole.

Indicating investors are willing to miss out on annual interest payments to hold German bonds, considered one of the safest assets in the world, the coupon on the new German bond was zero percent for the first time.

A move that has gathered pace since last month’s decision by British voters to back leaving the European Union, a collapse in developed market borrowing costs has swept more than $11 trillion worth of bonds globally into negative territory.

“It would be the icing on the cake for investors who have come to accept that you don’t get money back on your investment,” said David Schnautz, an interest rate strategist at Commerzbank, referring to a negative yield at the German auction.

In March¸ a 10-year bond with a negative yield was auctioned by Japan.

A 10-year bond with a negative yield in April was issued by Switzerland where almost the entire yield curve is sub-zero. With a yield of minus 0.023 percent, bonds maturing in 2058 were sold by the country on Wednesday.

as a layer of uncertainty was removed in markets with Theresa May poised to become Britain’s new prime minister, German 10-year bond yields fell 1 basis point to minus 0.11 percent, off a more than one-week high. The backdrop for German bonds remains favourable even with a pick-up in risk appetite in global markets.

Central banks are expected to limit any fallout on economic growth by delivering monetary stimulus and the implications of Brexit remain uncertain.

In addition, analysts say that safe-haven German debt are unlikely to lose their appeal for some time as there are other political risks facing the euro zone.

(Adapted from CNBC)

Categories: Economy & Finance