German Bunds rally, yields touch -0.50pc

LONDON: Benchmark German yields fell to an 11-day low on Thursday as investors jumped into safe-haven German debt amid rising cases of coronavirus, knowing they can sell the Bunds later to the European Central Bank, the biggest buyer in the market.

However ECB policymakers debated last month the extent of their flexibility in conducting emergency bond purchases as part of unprecedented efforts to revive the euro zone economy, the accounts of their July meeting showed on Thursday.

Federal Reserve minutes released on Wednesday also sent Treasuries lower, but after the Wall Street indexes retreated from all-time highs, US yields fell and their European counterparts followed suit.

"Investors remain very eager to buy Bunds. Most of them think at some point we can sell them back to the ECB. So I think that's one driver," said Christian Lenk, rates strategist at DZ Bank.

On Wednesday there was strong demand at a German auction of 30-year debt.

"Another is certainly the ongoing concerns that everybody is having about the coronavirus," Lenk said.

Novel coronavirus infections have spread nationwide in South Korea and across the entire European continent, prompting questions of a second wave.

The German 10-year Bund yield was last down two basis points at -0.49% after falling to -0.50%, its lowest since Aug. 11.

Lenk said it will be very hard to break sustainably below -0.5%, "because at that point you have the opportunity to make use of the deposit rate".

Several Federal Reserve policymakers think the US central bank may need to ease monetary policy further to nurse the economy through the COVID-19 pandemic, Fed minutes revealed.

But they also indicated that yield caps, or targets, were not on the horizon, breathing some strength into yields.

France has tapped 6.998 billion euros of shorter-dated bonds to good demand. The bonds came at or just through the offered-side yield at the time of the auction, and in general the market is unchanged.

French 10-year yields fell 3 bps to -0.21%, their weakest since Aug. 11.

Commerzbank rates strategist Rainer Guntermann said while it was unusual for the French debt office to tap the markets in August, given the high rate of absorption so far by investors, they have decided to stick to their normal funding pattern of heavy borrowing.