German debt auction priced at negative yield

Germany today issued €4bn of 6-month debt with a negative yield for the first time at auction as investors continue to pile into the perceived safe haven amid the ongoing eurozone crisis.

As the German Chancellor Angela Merkel met with her counterpart Nicolas Sarkozy of France to discuss the eurozone crisis, the country's latest debt auction ended with investors agreeing to pay Germany interest for its debt in order to protect their assets.

The 6-month bonds were sold with a yield of -0.0122%, well below the current market yield of 0.03%.

However, part of the reason for the negative auction may be because of a change in the way the German central bank is now carrying out the bidding process, after it moved to use prices rather than yields when accepting bids.

The auction was 1.8 times covered, compared with 3.8 times a month ago, but although this has declined, the last auction was for bunds with a positive yield. This shows there is still healthy demand for bunds despite the fact investors are now paying Germany an effective coupon to buy its debt.

In comparison, Hungary was today forced to pay 7.7% on a tranche of 6-week debt it issued to the market.

According to reports, the country managed to sell 40bn forint's worth - equivalent to €127m.