German Bund yield at new record low, test of zero looms

London, June 9: Germany’s 10-year Bund yield hit a new record low on Thursday, pushing closer to negative territory as a rally in global bond markets gathered pace.

A scaling back of expectations for a near-term rise in US interest rates and heightened political risks, for instance from this month’s UK referendum on European Union membership and Spanish election re-run, have bolstered demand for safe-haven bonds.

US 10-year Treasury yields fell to their lowest level since February, while British 10-year gilt yields struck a record low.

Bund yields, also pushed down by hefty monetary stimulus from the European Central Bank, fell as far as 0.034%, marking a third straight day of falls to record lows .

“There are a number of different factors driving yields lower and it started last week with the weak US jobs data pushing rate-hike expectations back,” said Patrick Jacq, European rate strategist at BNP Paribas.

“For the euro zone, this was the only constraining factor for lower yields.”

Some $10 trillion worth of sovereign bonds globally are in negative territory, according to Fitch Ratings, and German Bund yields could join the club soon, say analysts.

“Zero is very close now and I think the market wants to see if that level can be broken,” said DZ Bank strategist Christian Lenk.

Lenk said he thought Brexit jitters could drive Bund yields a tad below zero in the near term but expected yields to head higher during the second half of the year.

Commerzbank also said a test of the zero mark was looming. The ECB’s $1.7 trillion euro quantitative easing programme is also underpinning demand for Ger man bonds, driving yields lower.

Last week, the central bank reiterated its dovish stance and said it expected inflation to remain below its near 2%target out to 2018. Reuters