LONDON: German 10-year borrowing costs resumed a fall towards zero on Monday with worries about Greece exiting the euro zone increasing demand for top-rated assets and the European Central Bank's bond-buying programme crushing yields.
Yields were vanishing across the euro zone. Belgium became the sixth euro zone country to sell five-year bonds at a negative yield after Finland, Germany, Austria, the Netherlands and France.
In secondary markets, German 10-year yields retreated 1 basis point to 0.07 percent, having fallen as low as 0.05 percent on Friday.
They have tumbled 8 basis points in the past week. "German government bond yields are inching closer to zero, and may well hit that previously unthinkable mark," said Alan Higgins, UK CIO for Coutts.
Strategists said a stalemate between Greece and its international lenders, which threatens to push Athens towards default and could see it exit the currency bloc, had encouraged investors to take refuge in German bonds.
Athens on Monday issued a legislative act requiring public sector entities to transfer idle cash reserves to the country's central bank, as part of efforts to deal with a cash squeeze.
Greek Finance Minister Yanis Varoufakis said on Sunday that if Athens were to leave the euro zone, there would be an inevitable contagion effect.
But while the ECB cannot promise to fund Greece and its banks regardless of the circumstances, its Vice President Vitor Constancio said on Monday that it is convinced the country will not leave the euro.
Greek 10-year yields rose over 35 basis points to their highest level since late 2012 at 13.38 percent, while two-year yields increased 150 bps to 28.88 percent.
"We do not expect Greece to exit the euro zone. However, missed payments now seem ever more likely," said Eirini Tsekeridou, fixed income analyst at Julius Baer. An early rise in yields on lower-rated Spanish and Italian 10-year bonds eased off as ECB buying kicked in.
They were last unchanged on the day at 1.46 percent and 1.45 percent, respectively.
Ten-year yields on Portuguese debt, seen as the next weak link after Greece, fell 1 bps to 2.00 percent.
At the height of the euro zone crisis in 2011-2012, Portugal was shut out of bond markets, while Spain and Italy were borrowing at an unsustainable cost of around 7 percent.
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