Germany's Bond Yields Are at a Record Low -- This Is Why

http://www.independent.co.uk/news/world/americas/germanys-bond-yields-are-at-a-record-low-this-is-why-a7590926.html

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Germany's two-year government bond yields hit a record low Monday amid rising political uncertainty in the region as officials meet in Brussels to debate the ongoing bailout in Greece and polls indicate rising support for far-right Presidential candidate Marine Le Pen.

Benchmark 2-year German government bonds, known as schatz, traded 5 basis points lower at -0.87% Monday, the lowest on record, despite a much faster-than-expected reading for producer price inflation in Europe's biggest economy. German 10-year yields were quoted at 0.29% by 12:30 GMT, down 2 basis points from Friday's close.

The moves contrasted a rise in yields for French government bonds, which sold off after surveys indicated that Le Pen could poll as high as 40% in the second round of Presidential elections, scheduled for May 7, in a run-off against either Francois Fillon or Emmanuel Macron. French election rules stipulate that the two winners of the first round of voting, which will be held on April 23, face each other in a second round of voting.

Benchmark 10-year French government bonds, known as OATs, were quoted 6 basis points higher at 1.10%, taking the extra yield, or spread, that investors demand to own them instead of triple-A rated German bunds to 81 basis points, the most in nearly 5 years.

The fall in yields in Germany was also notable in that it came amid news that factory gate prices accelerated at a 2.4% clip last month, the fastest since 2012.

However, investors were also unsettled by weekend polling in Germany that indicated the first slippage into second place for Chancellor Angela Merkel and her CDU/CSU government coalition in more than a decade. Merkel faces what could be the most serious political challenge of her career next fall in federal elections that are likely to rest upon her government's handling of both the migrant crisis and the ongoing bailout in Greece and her centre-left Social Democrat (SPD) rivals have captialized on her perceived dithering.