LONDON: German government borrowing costs surged on Thursday, on course for their biggest weekly rise since mid-1999, just after the single currency was launched.
Europe has been the epicentre of a rout in global bond markets over the last week as deflation fears have eased and investors have started to baulk at eye-wateringly low yields.
Having hit a record low of 0.05 percent three weeks ago, benchmark German 10-year yields spiked more than 20 basis points on Thursday to hit 0.799 percent, the highest since November 2014.
While historically borrowing costs remain relatively low, price swings of this magnitude have not been seen in a quarter century, according to Reuters data.
"It's a historical move that we're experiencing," said Jean Francois Robin, head of strategy at Natixis.
German 10-year yields have risen over 37 basis points in the last week, as of 1020 GMT, on track to notch up their worst period since June 1999.
The euro was introduced in January 1999. The ferocity of the swings seen over the last week, as measured in the market by one-week realised volatility, have not been matched since at least 1992, according to Reuters data.
Bill Eigen, a fund manager at JP Morgan Funds estimates that investors would have lost more than 10 percent in total return terms as a result of the recent spike in German yields.
That was similar to the losses in Germany's main stock market index over the same period.
WIPED OUT
Most other major euro zone government bond yields also rose on the day. French bonds were among the worst performers, with yields up some 14 bps at 1.05 percent.
Some analysts said debt sales, which included 8.5 billion euros of French bonds and 4.5 billion euros of Spanish bonds, had exacerbated the sell-off as bank dealers and investors struggled to digest the new supply.
"People now have the notion that any gains you build up over months can be wiped out in just a few sessions," said Commerzbank strategist Benjamin Schroeder.
Others, however, said the sales were not having much influence and were being used to try and rationalise a more fundamental shift in market sentiment.
"People often use supply as a scapegoat for market moves.
It is something to hang their hat on," said Rabobank's Richard McGuire.
"We continue to argue that it is not supply that drives curve shape or yield levels, it is inflation and growth expectations as we saw during the UK and US variants of QE (quantitative easing)."
If issuance is exacerbating market moves, it could prove to be a torrid month for bond markets with some 75 billion of net issuance expected in May, according to Barclays.
This would trump March's total of 28.5 billion euros and mark a sizeable step-up from negative net supply of 7.5 billion euros in April.
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