Germany’s two-year note sale on Wednesday provided more evidence that an increasingly gloomy economic outlook in the euro zone keeps driving investors to buy negative-yielding securities in return for their safety — and potential capital gains.
The country’s bonds, which have returned 4.4 percent percent this year, were mostly little changed as Europe’s largest economy allotted €3.24 billion of securities maturing in 2018 in an auction, with an average yield of minus 0.48 percent.
Gains in 2016 had pushed the two-year note yield down to a record-low minus 0.586 percent on March 4, six days before the ECB cut its main interest rates and increased the monthly size of its asset purchases by one-third, giving fresh support to debt that now yields less than zero for as long as nine years.
Negative yields have proved to be no major deterrent in auctions so far. The previous sale on March 9 of two-year debt attracted bids equivalent to more than two times the amount sold, even as investors settled for an average yield of minus 0.55 percent. Germany’s industrial production fell in February from January, providing another reminder of economic challenges facing the region.
“Clearly there is bias toward lower yields across the board,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris, who sees the German 10-year yield falling to less than zero this year. “All the factors are favorable for an extension of the recent rally.”
Germany’s two-year note yield was little changed at minus 0.484 percent London time, with the price of the zero percent security maturing in March 2018 at 100.945 percent of face value.
The yield on benchmark 10-year bunds rose three basis points, or 0.03 percentage point, to 0.13 percent, after falling on Tuesday to less than 0.1 percent for the first time since April 2015. Longer-dated bonds fell as stocks in Europe rebounded from a six-week low, reducing demand for haven assets.
Portugal’s 10-year yield increased six basis points to 3.21 percent, after being as high as 3.23 percent, the most since Feb. 26, as the nation prepares to sell 2022 and 2045 debt via banks, according to a person familiar with the matter.