German benchmark Bund near zero

Yields in the Eurozone’s top-rated government bond markets held close to their lowest levels in over two years yesterday, at the end of week that saw another significant adjustment of investors’ expectations of world economic conditions.

Germany’s benchmark 10-year bond yield is just 10 basis points away from zero per cent and is now in territory that in bond markets reflects dire concern about economic conditions.

It was pushed in this direction on Thursday after the European Commission slashed growth forecasts for the European Union.

“The level on German Bund yields suggests a very pessimistic economic outlook, especially in Europe,” said Ciaran O’Hagan, rates strategist at Societe Generale. “We don’t think a move to zero per cent is likely but it could happen.”

Concern that economic conditions may be worse than anticipated a few months ago has driven yields on safer bonds down. In Eurozone benchmark issuer, Germany, that means bonds with maturities out to nine years now yield below zero per cent.

As German Bund yields hit fresh lows, 10-year bond yields in France and the Netherlands held near their lowest levels since late 2016.

The move in these higher-rated or “core” Eurozone bond markets reflects a broader trend in world markets as investors bet weak economic conditions will prevent central banks from tightening monetary policy anytime soon.