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Germany bond yield turns negative for first time

Wednesday, July 18, 2012 - 01:35

July 18 - U.S. bond prices rose and Germany sold debt with a negative yield for the first time on Wednesday as investors uneasy about a bleak economic outlook from the Federal Reserve and the intractable euro zone crisis turned to safe haven assets. Jamie McGeever reports.

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An historic day on the euro zone's bond markets. Germany borrowed over 4 billion euros of 2-year funds from international investors at a bond auction. So far, so normal. But the interest Berlin paid was negative. Minus 0.06 percent. Effectively, the investors lending to Germany are paying for the privilege of doing so. This is the first time this has ever happened in the euro zone. It's not the first time yields have gone negative though. On the secondary market, where millions of deals are done every day, the yield yield on 2-year German bonds has been negative for about a week now. And Don Smith from ICAP says its not just Germany. SOUNDBITE: Don Smith, ICAP, saying (English): "There are six countries now with negative yields in or around the Euro zone. I think France is pretty much on the edge, we've got some auctions coming through tomorrow but there's been this almighty drop in yield levels at the very short end of the curve in core Euro zone and it just highlights investor nervousness that's going on in the Euro zone, the outlook for the Euro itself. There's just a flight really to quality." It's a different story in other parts of the euro zone, the so-called "periphery". Italy pays 4 percent to borrow for 2 years, Spain pays 5 percent and Portugal, Ireland Greece are locked out of bond markets completely because nobody will lend to them at any rate. The polarisation of the region's debt market continues. Jamie McGeever, Reuters

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Germany bond yield turns negative for first time

Wednesday, July 18, 2012 - 01:35