Brexit impasse keeps German Bund yield in negative territory

LONDON: Investors stuck with safe-haven German bonds on Tuesday, negative yields notwithstanding, a day after British lawmakers voted down four Brexit options.

Positive industrial data from China and the United States had pulled German 10-year yields back towards the zero mark on Monday after last week's descent deep into negative-yielding territory.

But that move stopped in its tracks on Tuesday after the British parliament failed to find a majority for any alternative to Prime Minister Theresa May's divorce deal - a development that kept alive the prospect that Britain might leave the European Union with no deal in 10 days' time.

"It does seem that British MPs want to avoid a no-deal Brexit by all means, but they are not voting for any of the alternatives and time is running out," DZ Bank strategist Daniel Lenz said.

"So I think investors have to prepare for the possibility that no-deal Brexit is on its way in 10 days' time; it's a little bit affecting yields this morning."

British Gilt yields fell four basis points on the day  , dragging euro zone equivalents down.

German 10-year government bond yields, the benchmark for the bloc, fell two basis points to minus 0.047 percent, while most other euro zone bond yields were lower 1-2 bps on the day.

This comes after the 10-year Bund yield had moved away from last week's deeply negative yield of minus 0.09 percent and closer to the zero mark on Monday after positive industrial news from China and the United States.

Data on Monday showed Chinese factories expanded at their strongest pace in eight months in March. And although U.S. retail sales dropped unexpectedly, a rebound in factory activity and a strong increase in construction spending offered hope the economy was not slowing as sharply as feared.

The drop in the German Bund yield is particularly notable given that 10-year U.S. Treasury yields rose 8 bps overnight; the biggest daily rise since the start of the year.

Greek 10-year government bond yields, meanwhile, hit a one-month low of 3.68 percent after a Bloomberg report suggested the country is considering an early repayment of part of its loans from the International Monetary Fund.

Shorter-dated five-year debt yields were down 3 bps on the day to 2.55 percent.