INVESTORS SHUNNED one of the most liquid and safest assets in the world yesterday as a German bond auction came close to failing in a warning sign for governments attempting to raise record amounts of debt to boost their slowing economies.

The auction of two-year bonds saw only just enough bids to meet the €7 billion the government wanted to raise. Although a number of German bond auctions have failed this year, it was almost unheard of before the credit crisis, with the last failure before then in July 2000 following the dotcom meltdown.

Meyrick Chapman, strategist at UBS, said: "When a German bond auction struggles, you know there are problems. This is a sign demand among investors is already waning for government bonds because of the huge supply." Other analysts say the fact Germany could sell at historically low interest rates, or yields, suggests the market is in reasonable shape as investors still bought in because of deflation fears and market uncertainty. It is also the year-end, when many banks and investors close their books.