Investors are prepared to take sub-zero yields in order to keep their money in safe haven German 10-year bunds

Caitlin Morrison
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Yields on German bunds have dropped below zero (Source: Getty)

Germany is getting ready to sell €5bn (£4.2bn) worth of 10-year bonds with a zero per cent coupon for the first time.

Yields on the German bund have been dropping for weeks – and are now firmly in negative territory, hitting a record low of minus 0.2 per cent last week, which is why a negative yield is expected at the auction.

A negative yield would mean investors buying the 10-year bund and holding it to maturity would receive less back than they paid at the outset.

Volatility arising out of the recent Brexit vote has sent investors rushing towards safe haven assets like government bonds - and German bonds are considered one of the most secure assets in the world, borne out by the fact investors would be wiling to buy them even if it means missing out on interest payments.

"The 10-year bund is the benchmark and a negative yield at today's auction would be symbolic," said David Schnautz, an interest rate strategist at Commerzbank.

"It would be the icing on the cake for investors who have come to accept that you don't get money back on your investment."

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