Ever-Deeper Negative Yields No Deterrent to German Haven Appeal

  • Europe's higher-yielding bonds slump with U.S. equity futures
  • Portuguese two-year yields rise to highest since July

The deepest negative yields on record are proving to be little deterrent for investors, who are flocking into short-dated German debt to escape the global financial turmoil.

Yields on German securities with due dates of as much as three years tumbled to records Tuesday amid the surge in appetite for havens. Austrian, Dutch, Finnish and French two-year note yields also fell to the lowest ever as investors sought out the debt of Europe’s highest-rated nations. Some bonds retreated later in the day, with German 10-year yields climbing from the lowest since April.

“There’s a lot of fear in the market right now,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. The situation is becoming “critical,” he said.

At the other end of the euro-zone scale, Portugal’s two-year note yields jumped to the highest since July in a sign that economies perceived to be more vulnerable to slowing global growth are being hurt by the volatility stalking world markets.

Germany’s two-year note yield was little changed at minus 0.507 percent as of 1:16 p.m. London time, after dropping to minus 0.523 percent, the lowest since Bloomberg started tracking the data in 1990. The price of the zero percent security due December 2017 was at 100.94 percent of face value.

Ten-year bund yields rose three basis points, or 0.03 percentage point, to 0.24 percent. Earlier, they fell to 0.19 percent.

Too Much?

The drop in Germany’s longer-dated securities may be a sign that investors judge the rally as having been too fast, said David Schnautz, a director of rates strategy at Commerzbank AG.

“Put into context it’s more a pullback or consolidation,” said Schnautz, who’s based in London. “It would probably be a bit premature to call this the turnaround day.”

There’s speculation the rally might unravel if the European Central Bank underwhelms investors on March 10, as it did in December, in delivering stimulus.

“They’re under a lot of pressure,” said Danske’s von Mehren. “The markets are expecting them to dig deep and deliver.”

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