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German bond yields fall further

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German bond yields fall further

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Germany’s cost of borrowing has fallen to a new record low.

On Wednesday the government easily sold 4.15 billion euros worth of 10-year government bonds at an average interest rate of one point three one percent.

The auction shows how desperate investors are to buy “safe haven” German bonds and how little confidence they have in recent measures agreed by European policymakers to combat the eurozone debt crisis.

The worry is that Madrid may need a full state bailout, which would stretch the limits of the European Stability Mechanism and leave the bloc defenceless in case the crisis engulfs Italy, one of the largest bond markets in the world.

On Tuesday Italian Prime Minister Mario Monti said Italy could be interested in tapping the fund to ease its borrowing costs.

Germany will repay bonds and interest worth 40 billion euros this week and the prospect of a further 50 billion euros of payments due next week from triple-A rated countries including France and the Netherlands also boosted demand.

For shorter-dated debt, investors are even willing to pay Germany to park their cash with it. Two-year yields traded in and out of negative territory this week.