August 2, 2011 / 12:25 PM / 9 years ago

Real German bond yields hit zero for 1st time in over 50 years

LONDON, Aug 2 (Reuters) - The euro zone sovereign debt crisis has stoked so much demand for German 10-year bonds that they have stopped offering a premium over inflation for the first time in more than half a century.

The yield on German 10-year government bonds , the euro zone benchmark, fell as low as 2.395 percent on Tuesday. That was the lowest in nearly nine months and below the latest German annual inflation rate, July’s 2.4 percent .

For the first time since at least 1957, the earliest year for which Thomson Reuters data was available, the real bond yield — which adjusts for inflation — has been completely erased for German 10-year paper as a result.

The steady decline in German bond yields has reduced the borrowing costs of Europe’s largest economy even as the cost of funding has risen for highly indebted euro zone countries —Greece, Portugal, Ireland, and more recently Spain and Italy.

For a graphic, click on link.reuters.com/syd92s (Reporting by Ana Nicolaci da Costa and Scott Barber, editing by Swaha Pattanaik and Nigel Stephenson)

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