LONDON: Germany's 10-year Bund yield would be between 0.2 and 0.5 percent without the risk that Britons could vote this month to leave the European Union, instead of at current levels below 0.05 percent, analysts calculate.
According to Mizuho, the recent spike in three-month sterling/dollar implied volatility -- a measure of how sharp swings in the exchange rate will be -- is suppressing Bund yields by around 15 basis points, compared with historic norms.
Germany's 10-year yield, the euro zone benchmark, hit a record low of 0.034 percent on Thursday.
It has edged closer to zero on uncertainty before Britain's June 23 referendum on EU membership.
"If there were no Brexit fears then the Bund yield may be closer to 0.20 percent, all else being equal," said Peter Chatwell, head of euro rates strategy at Mizuho.
Uncertainty about the referendum's outcome, which polls suggest is too close to call, has lifted demand for safe-haven German bonds, with a potential Brexit seen having a negative impact on the euro zone economy.
ABN AMRO, said that according to its fair value model for Bunds, the 10-year yield should be about 50 basis points, or 0.5 percent.
The model takes into consideration indicators such as Germany's stock market, business sentiment measures and the Euribor money market rate.
"The 40-45 basis point difference with the current yield level represents the impact of both Brexit risks and ECB bond buying," said ABN AMRO's senior fixed income strategist Kim Liu.
Mizuho's Chatwell added that with Brexit polls likely to be volatile ahead of the June 23 referendum, currency volatility would persist, holding German yields down.
"Bunds should have no problem holding the current level of yield and in the event of a Brexit shock, could comfortably trade below 0 percent in yield," he said.
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