Citigroup Sees German Two-Year Yields Below -1% as Rally Extends

  • Securites set for best week since debt crisis on haven demand
  • ECB seen buying $85 billion of short-term German notes in 2017

The rally in German two-year notes gathered steam on Friday, with Citigroup Inc. predicting yields could drop to minus 1 percent and beyond.

The securities headed for the best weekly gain since the euro area’s debt crisis, buoyed by demand for safer assets amid rising French political risks and the European Central Bank’s stepped-up purchases below its old deposit-rate floor. Citigroup estimates the ECB will buy about 80 billion euros ($85 billion) of one- to six-year German bonds this year even as it trims its overall monthly purchases from April, analysts led by Harvinder Sian wrote in a client note.

The two-year yield fell four basis points to minus 0.94 percent on Friday, after touching a record minus 0.953 percent. The yield is set for five-day decline of 13 basis points.

  • Ten-year yields fell two basis points to 0.22 percent. Citigroup is targeting a yield of 0.1 percent, the analysts wrote in the note
  • The French-German 10-year yield spread was at 74 basis points. It reached 84 basis points on Monday, the highest since 2012
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