The price of rock-solid German government bonds has rocketed over fears of a possible Brexit.
Interest rates have fallen to record lows meaning investors are looking for safe havens to park their cash.
As investors flock to place money in German government 10-year bonds their price has risen
bonds, which are considered a benchmark of financial security, known as
Bunds, are now not paying any money back because demand is too high.
Today the Bund yielded minus 0.028 percent - meaning it was costing anyone who held the investment.
As investors flock to place money in German government 10-year bonds their price has risen (German parliament pictured)
any hope of a return on their investment now seems a reasonable price
to pay to escape the uncertainties of falling stock markets or volatile
commodities and currencies.
factors driving the current rally in Bund prices are concerns about the
global economy, rock-bottom inflation in the Eurozone and fears about a
for weeks has placed the Leave campaign ahead of the Remain side with
the British referendum now little more than a week away.
economist Ulrich Kater said: 'A huge driving factor behind the current
price trend is the heightened uncertainty over a possible Brexit, which
is driving investors into the safe haven of German sovereign bonds.'
rates on sovereign debt have been low for some time as central banks
snap up government bonds from investors in an effort to boost economic
it in Japan, the United States, Switzerland or Britain, the rate of
return for sovereign bonds of most major industrialised nations are
striking new record lows in day-to-day trading.
German chancellor Angela Merkel
drop in yields below the zero mark once again shows the immense
challenges currently facing global financial markets,' Kater said.
growth is pulling down inflation expectations even further. Central
banks are trying to counter falling inflation expectations using
aggressive monetary policy,' he said.
European Central Bank has slashed its key interest rates to zero and
launched a massive bond-buying programme known as quantitative easing
(QE) in a bid to get the eurozone economy back on its feet and push
analyst Werner Bader said: 'Fears that Britain will quit the EU has
killed off any willingness to take risks in European capital markets.'
'Risk aversion and scarcity remain the key driving forces for market activities and valuations.'
own finances have benefitted from its safe-haven status in recent
years, because with investors favouring national sovereign debt,
borrowing rates in Europe's biggest economy have come down.
government has seen its annual interest payments fall from more than 40
billion euros ($45 billion) per year in 2008 to 21 billion euros in
reduced debt servicing costs enabled Germany to balance its budget in
2014 for the first time since 1969 and a year ahead of target.
The finance ministry declined to comment on the drop in Bund yields today.
spokesman for the German national financial agency said the drop to
negative yields should not be seen in terms of either good or bad.
government's debt management is done on a long-term perspective. The
current level of yields is of secondary importance,' he said.
'The main aim is to reach a sustainable balance between costs and reliability of planning.'
from the taxpayers' point of view, 'negative yields are certainly
pleasing because they reduce interest payments in the federal budget.'