LONDON: Benchmark 10-year German Bund yields hit their lowest level in almost three weeks on Wednesday, as global security worries lifted demand for safe-haven government debt.
Early on Wednesday, gunfire erupted in a north Paris suburb as French police launched an operation to catch suspects believed to be behind gun and bomb attacks in which 129 people were killed last week.
Two Air France flights to Paris from the United States were diverted on Tuesday due to security alerts, while a soccer game between Germany and the Netherlands in Hanover was called off over fears of a planned bombing.
This backdrop encourage risk aversion in global markets, with European stocks opening lower while bond markets across the region retained their firm tone thanks to expectations for more monetary easing at the European Central Bank's next meeting.
The 10-year German Bund yield fell 2 basis points to 0.51 percent, the lowest level in almost three weeks. Two-year bond yields briefly touched a new record low of -0.39 percent.
"There's absolutely no reason not to expect the ECB to ease next month and we've had further falls in commodity prices that adds to the subdued inflation outlook," said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.
"The events in Paris compound that and compound the weaknesses in the euro area."
ECB chief economist Peter Praet said on Tuesday that inflation expectations were still fragile and downside risks may have increased in light of the attacks in Paris.
Money markets are now fully pricing in a 10 basis point cut in the ECB's deposit rate to -0.30 percent in December.
Analysts at Commerzbank said a two-year Schatz auction later on Wednesday could put investor demand "to the test."
Germany is scheduled to sell a new bond maturing in 2017 for about 5 billion euros.
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