German Two-Year Yields Fall to Record as Haven Demand PersistsBy
Notes gain for fourth day as Le Pen rises in French polls
Spread to Treasuries at widest since 2000 on policy divergence
German two-year notes climbed for a fourth day, pushing the yield to a record low, as investors sought the region’s safest assets amid growing concern over the outcome of the French presidential election.
The yield spread between the securities and similar-maturity Treasuries touched the widest in almost 17 years as the latest polls showed anti-euro candidate Marine Le Pen narrowing the gap against a second-round competitor.
“People are just afraid to fade the move,” said Alexander Aldinger, an interest-rate strategist at Bayerische Landesbank in Munich. “If we can see some stabilization in political news we will stop at current levels and I can’t see that we’ll reach minus one percent.”
The yield on German two-year notes dropped as much as five basis points to a record minus 0.915 percent. That pushed the spread versus similar-maturity Treasuries to 213 basis points, the most on a closing basis since March 2000.
The European Central Bank’s commitment to its bond-buying program contrasts with expectations for as many as three interest-rate hikes in the U.S. this year, a policy divergence that is also widening the spread between German and Treasury bond yields.
Investors are protected by the ECB at the short-end, and are omitting long-end bets because of steepening risks, Aldinger said. Germany failed to attract enough bids to meet a 1-billion-euro issuance target of 30-year bonds at an auction on Wednesday.
The sharp widening in sovereign spreads within Europe and between Germany and the U.S. is similar to exchange-rate moves during the U.K. and French currency crises of 1992 and 1993, according to Simon Derrick, the chief currency strategist at Bank of New York Mellon Corp. in London.