How German government debt just got dangerous
“Poisonous cocktail” of events could see investors burnt by holding ultra-safe German government debt, warn analysts
By Mehreen Khan
TelegraphUK
13 Apr 2015
Investors have been warned of dangers of holding German government debt, as unprecedented central bank easing sends the country’s 10-year borrowing costs towards zero.
Bunds with a maturity of up to eight years have already veered into negative territory, and are likely to be joined by 10-year debt, which is currently trading at 0.15pc, down from 0.54pc at the start of the year.
A €1.1 trillion quantitative easing blitz from the European Central Bank last month has driven up the price of safe assets such as eurozone government debt. Yields, which move in the opposite direction to fixed income prices, have plummeted.
Anxiety over Greece’s future in the eurozone and the spectre of a deflationary spiral gripping the currency zone have also driven investors to seek shelter in high-quality sovereign debt. Germany’s triple-A rated sovereign paper is considered the safest asset class in the eurozone.
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