Germany sold 30-year bonds with a negative yield for the first time at an auction on Wednesday, a milestone for a fixed-income market where the entire curve now yields less than zero.
The euro zone’s benchmark bond issuer sold 824 million euros of the new long-dated bonds against a target of 2 billion euros, with an average yield of -0.11%. The coupon on the bond was set at 0% earlier this week.
Bond yields across major markets have tumbled this year on worries about weak growth and speculation about central bank easing. Ultra-long-dated bonds have outperformed as investors move into longer and longer-dated maturities to grab a few extra basis points of yield.
The decline in 30-year bond yields in recent weeks meant tepid demand at Wednesday’s bond auction was no surprise, analysts said. German 30-year yields are down 28 basis points this month and set for the biggest monthly drop since 2016.
“It was a litmus test for just how willing the market was to take down a 30-year Bund with a 0% coupon, and there was a lack of commitment, of willing that is significant,” said Matt Cairns, a rates strategist at Rabobank in London.
“Opinions are likely to change in the foreseeable future given an announcement from the ECB, which is likely to drag yields even lower.”
The European Central Bank is expected to cut interest rates when it meets next month and deliver other easing measures to shore up a flagging economy and boost inflation.
In Germany, that has pushed the entire yield curve below 0%.
Germany’s bond yields rose on Wednesday before the auction and briefly extended those increases after the auction results.
As trading wound down in European hours, Germany’s 30-year bond yields was flat on the day at -0.17%, holding above last week’s record-low -0.31%.
Other German yields were higher, in line with other euro zone debt yields.
Below 0%, investors are essentially paying governments to hold their debt — a move that can be profitable if investors are willing later on to pay more for holding government debt.
In the past year, German 30-year bonds have returned over 30%, compared with returns of around 10% on 10-year Bunds. This comes as the pool of negative-yielding bonds deepens globally.
“It shows that the market is still concerned about the macro backdrop,” said Commerzbank rates strategist Michael Leister, referring to the auction results.