LONDON: Germany's 10-year Bund yield hit a new record on Friday and was within striking distance of zero as risk aversion and worries about global growth ensured a bullish tone for safe-haven debt markets across the globe.
There has been little let up in the downward march in bond yields this week as a number of factors come into a play.
These include uncertainty about the outcome of Britain's June 23 referendum on European Union membership and a scaling back of US interest rate expectations following dismal US jobs numbers a week ago.
Ten-year yields in Germany, Japan and the UK all struck record lows on Friday, while US Treasury yields hit their lowest level in more than three months on Thursday.
German Bund yields - the benchmark for borrowing costs across the euro zone - have fallen almost 10 basis points in little over a week to as low as 0.021 percent.
As Bund yields edge closer to zero, talk of a move into negative territory has grown. German bonds with a maturity out to nine years already have a yield below zero.
"A move into negative territory for German Bunds in the coming days would mean that investors would be paying to lend money to the German government all the way out to 10 years, in the same way they currently are for Japan now," said Michael Hewson, chief market analyst at CMC Markets.
Both the European Central Bank and Bank of Japan have taken official interest rates into negative territory, helping send a wave of government bond yields below zero.
According to Fitch Ratings agency, just over $10 trillion of sovereign bonds globally had yields below zero in May.
In a tweet on Thursday, Janus Capital's Bill Gross warned the pile of negative-yielding bonds is a "supernova that will explode one day."
Even a small rise in yields could hurt investors, who had their fingers burnt last year when Bund yields fell to as low as 0.05 percent in April before a blip in inflation sparked a jump to just over 1 percent by mid-June.
Other analysts say there are valid reasons for the fall in bond yields to ultra-low levels.
Naeem Aslam, chief market analyst at Think Forex, said that while investors were wary with Bund yields so close to negative territory, "they are still ready and interested to go with it."
The bullish tone in core government bond markets spilled over into peripheral European bond markets, which often suffer from a risk averse environment.
Bond yields across the euro zone were 1-4 basis points lower on Friday, with Italian and Spanish bond yields
not far off multi-week lows hit on Thursday.
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