Germany sold 4.56 billion euros ($5.8 billion) of bonds carrying a zero percent coupon on Wednesday, its first-ever sale of debt offering investors no regular return and underscoring its safe-haven appeal at a time of turmoil in the euro currency zone.
Germany - which joins a select band of counties including Japan by issuing conventional debt carrying little or no coupon payment - attracted strong demand for the two-year bonds, whose sale completes nearly half of its 2012 funding target. "As long as the Greek/euro zone crisis continues, people have to get used to the fact you'll have these very low or even negative yields on shorter-dated paper," said Peter Allwright, head of absolute return on rates and currency at RWC Partners, a $4 billion fund. "Even if you assign a small probability to a euro-zone break-up, the consequences are so large that it makes having that insurance worthwhile."
Pricing the bond just below face value gave an average yield of just 0.07 percent - almost free money for the biggest economy in the euro zone. But that did not deter buyers concerned a new Greek government will reject the terms of the country's bailout, possibly forcing it to ditch the euro and throwing the currency zone into a fresh crisis. As a result of the turbulence, investors have become more concerned with preserving their capital, rather than worrying about returns. That has pushed German bond yields to record lows, in contrast with Spanish and Italian yields which have marched higher as international investors ditch their debt.
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