June 14, 2016 – Investors today started paying for the privilege of owning rock-solid German government bonds as fears of a possible Brexit and economic worries caused a rush to the safety of German debt.
While borrowers traditionally pay interest on the money they are loaned, in the face of heightened political and economic uncertainty, those interest rates have come down to record lows recently as investors flock to safe havens to park their cash.
German government 10-year bonds are considered a benchmark of financial security and strong demand for the bonds, known as Bunds, caused prices to peak, in turn pushing their yields into negative territory for the first time ever.
In late morning European trading today, the Bund yielded minus 0.028 per cent, an immediate cost to anyone holding the investment.
Ditching any hope of a return on their investment now seems a reasonable price to pay to escape the uncertainties of falling stock markets or volatile commodities and currencies.
The 10-year German government bond is regarded as one of the safest investments and among the factors driving the current rally in Bund prices are concerns about the global economy, rock-bottom inflation expectations in the single currency area and fears about a possible Brexit with the British referendum on EU membership just 10 days away, traders said.