Near-dated Bund yields turn negative as all eyes watch Spain

Yields on German two-year Bunds have turned negative as investors continue to seek safer investments, amid fear over the growing crisis among Spain’s banks.

Lending to Germany for two years cost investors money, as yields fell to -0.001%, while 10-year loans still cost Berlin money, to the tune of 1.147%.

While still nominally positive, this yield was negative after accounting for inflation – in real terms – and was another new low yield for 10-year Bunds.

By contrast, investors demanded 6.6% yields to buy 10-year Spanish sovereigns, the highest rate since the introduction of the euro.

Data from Spanish banks showed depositors with them pulled net €66.2bn last month, up €5.4bn year on year. Last quarter they pulled €97bn from the country.

Madrid is under pressure to explain clearly to the European Commission exactly how it plans to bail out Bankia, believed to cost it €19bn.

Spain relies on its largest banks to lend it money, not least at a planned debt auction next week.

Against this backdrop, the European Commission’s Oli Rehn has called again for Germany to accept joint guarantees on Eurozone loans, via eurobonds, but Germany’s chancellor Angela Merkel continues to oppose this.

She also faces pressure from French president Francois Hollande and Great Britain’s David Cameron to accept eurobonds.

Investors found some macro economic relief, though not joy, today in US employment data that showed private payrolls rose 133,000 in May, but jobless claims also increased, by 10,000, last week.

US GDP was revised lower to 1.9% for the first quarter.

 

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