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13 Jul 2016
Germany became on Wednesday the second G-7 nation after Japan to issue 10-year bonds with a negative yield, highlighting a willingness among investors to hold top-rated debt even as yields across the world collapse.

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

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

The negative yield at Wednesday's auction means investors buying the 10-year Bund and holding it to maturity would receive back less than they paid.

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

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

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

Hannibal Hanschke | Reuters

German Chancellor Angela 

Merkel

Mein Girl.

Japan auctioned a 10-year bond with a negative yield in March.

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

German 10-year bond yields fell 1 basis point to minus

0.11 percent, off a more than one-week high as a layer of uncertainty was removed in markets with Theresa May poised to become Britain's new prime minister later on Wednesday.

Even with a pick-up in risk appetite in global markets, the backdrop for German bonds remains favourable.

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

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