German bond yields top 0% for first time since May 2019

FRANKFURT: Yields for 10-year German bonds passed into positive territory on Wednesday for the first time since May 2019, as surging inflation in the eurozone prompted fears of monetary tightening.

At 0715 GMT, Bund yields passed zero briefly to touch 0.001 per cent for the first time since the European Central bank launched a stimulus programme in 2019 to tackle the risk of a recession in the eurozone.

A bond generates a negative yield when investors are willing to pay more for it than the actual sum they are investing in it plus the returns it is offering.

German government 10-year bonds are seen as a safe haven for investors to turn to in times of instability.

The benchmark figure touched minus 0.91 per cent in March 2020 when the coronavirus was taking hold in Europe, as investors were willing to take a loss in exchange for the relative safety offered by the government bond.

The further relaxation of the ECB’s policy to prop up the economy kept yields deep in negative territory until recently.

But unusually high inflation in recent months has encouraged central banks everywhere to tighten their response, with the ECB announcing a “step-by-step” reduction to their asset-purchasing programme.

The massive bond buying programme is the ECB’s main crisis-fighting tool, aimed at keeping borrowing costs low to stoke economic growth.

Inflation in the eurozone reached a record five per cent in December, its highest value since records began in January 1997.

But unlike in the United States, where expectations are mounting that the Federal Reserve will hike rates multiple times this year, the ECB’s guidance still points towards its first rise in 2023.

The Frankfurt-based institution has long held its interest rates at historic lows, including a negative overnight deposit rate, which charges banks to park their money at the ECB.

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