Talk of the day: German Bund Yield Below 0%

| 15-06-2016 | Udo Rademakers, Rob Söentken, Douwe Dijkstra & Lionel Pavey |

german bund yield below 0


For the first time ever the German bund yield hit negative territory. The ‘Deutsche Welle’ writes: “With the prospect of Britain leaving the European Union looming ever larger ahead of referendum in 9 days, global investors are increasingly fleeing to safe havens such as German debt and Japenese currency. As a result, the yield on Germany’s benchmark 10-year debt fell into negative territory for the first time in its history on Tuesday. ” ( We asked some of our experts to give their opinion on this news:

Udo Rademakers
“Billions of Euro´s are invested into sovereign debt, even if meanwhile investors need to pay for this. German yield prices can meanwhile compete with Japan and Swiss rates (all below 0). The mainstream media explains this development as “concerns about the economic and political risks of a Brexit” and “concerns about the state of global growth”. However, the longer term trend since the 1980´s has been downwards and we now see a kind of (last?) acceleration in price.

Knowing the challenges Europe (and Germany) is facing, I think it is a matter of time before we could expect a spike in the rates again….. .I would place my bet in other markets.

Every trend is coming to an end…….”

Rob Söentken                                                                                                   
“Not even a month ago markets were discounting the impact of the Brexit referendum. Now in a matter of weeks the odds have swung back from around 25% in favor of leaving to 42%. The increased media attention and figures (true or false) being thrown around are making voters run to register to vote. Apparently it’s mostly younger voters, who tend to be more in favor of staying. It is said that a turnup above 60% is favorable to the ‘remain’ vote. Still both camps are becoming more and more committed.

The downside for GBP vs EUR is probably the biggest risk. If the UK leaves the EUR, UK equities may dip sharply, but will likely recover because of the prospect of more independent monetary and economic policy. Interest rates will probably start rising to incorporate the increased independence risks. But the GBP as a currency may dip an absolute 10% or more, anticipating asset sales from foreign investors. Investors will fear the UK will become like Italy and France in the past: a country that needs to devalue its currency on a regular basis to offset internal rigidities and inefficiencies.”
                 Douwe Dijkstradouwedijkstrarond
“Who would have thought this a few years ago, the interest rate on 10- year German government bonds below zero percent. For some time we hear our banks and advisors recommending to fix our interest rate exposure because its “now or never”.

However, anyone who has fixed already acted too early. For one of my clients I’m busy to Blend & Extend their current IRS contracts, fixing the interest rate for 7 years. Afterwards too early? Nobody knows. I think my client will have no regrets rather ” sooner than later”!”

Lionel Pavey

“Possible reasons:

  • Flight to quality – investors looking to place their money in a safe place
  • Brexit referendum – polls suggest chance of exit greater than ever leading to uncertainty
  • Quantitative easing – ECB policy of buying government bonds pushes bond prices up and decreases the yield

More on this topic in my article which will be published on Friday.”

What’s your opinion on this news? Let us know in the comment section below.