Yields on German 10-year bonds may test zero this week

Germany’s 10-year bond yields, already at a record-low, are likely to test zero as soon as this week, according to the top-ranked primary dealer of the nation’s debt.

"The market looks poised to test the level," said Michael Leister, the Frankfurt-based head of rates strategy at Commerzbank AG. "I think it can happen over this week. Momentum is quite strong, we're not that far away from the zero line."

German securities, which act as Europe's benchmark sovereign debt, rose Wednesday as investors digested signs of a slowdown in the US labor market, contended with this month's referendum on the UK's membership of the European Union and absorbed the effects of unprecedented monetary stimulus.

Germany’s 10-year yield fell to as low as 0.033 per cent, the least on record. It was down one basis point, or 0.01 percentage point, at 0.04 per cent as of 9:30 a.m. London time . The 0.5 per cent bund due in February 2026 rose 0.1, or €1 per €1,000 face amount, to 104.45.

A move below zero would see Germany join Japan and Switzerland in having negative yields for a decade or longer. Yields below zero mean investors who buy the debt now and hold them to maturity will receive less than they paid.

“It’s unlikely that this spiral is going to reverse,” Leister said. ‘Even zero levels for the 10-year seem possible at this stage.”

Bloomberg