German bond yields fall amid growth fears, equity weakness

[LONDON] German bond yields slipped towards record lows on Wednesday as concerns over global growth spurred demand for safe-haven debt.

The euro zone's largest economy was at the centre of jitters about the region after poor industrial data this week and warnings from the IMF about a slower-than-expected recovery in domestic demand.

The German data has overshadowed worries that the United States will start to raise interest rates soon, which would push German bond yields higher, and has prompted investors to switch out of risky investments. On Wednesday, it sent European stocks to a 1-1/2 month low in early trading, in favour of top-rated bonds. "There are a lot of worries about the macro picture, especially in the euro zone, and that is benefiting the bond market," said Jean-Francois Robin, head of strategy at Natixis. "We are back to a traditional correlation when the equity market is going down, the bond market is going up." German 10-year yields - which have an inverse relationship to prices - dropped 2 bps to 0.89 per cent, just above record lows of 0.867 per cent hit in August.

The move followed a sharp fall in 10-year US Treasury yields on Tuesday, when long-dated yields hit their lowest levels since May 2013, despite the threat of a rise in interest rates.

Germany is set to auction 4 billion euros(S$6.47 billion) of a new five-year bond, while Portugal will tap around 1 billion euros of a 2020-maturity bond.

Low yields could hurt demand at the German auction, especially given the country has recorded seven technical failures this year. Portugal's sale, however, is expected to be strong with some predicting the country could be in for a rating upgrade when Fitch releases its latest assessment on Friday.

Greek bonds were the worst-performing euro zone bonds on Wednesday as concerns around the EU and IMF's latest review of Athens' bailout programme, and a government confidence vote later this week, continued to weigh on markets. Ten-year yields were up 6 bps at 6.77 per cent.-Reuters