It is difficult to comprehend how investors would want to invest in a 10 year fixed rate that provides almost no return.
In essence, they would have to be quite worried about deflation and the security of a German bond (bund) is the safety feature driving their purchasing decisions.
The European Central Bank is also assisting in this low yield as they continue to purchase bonds and reduce the supply with their version of a program of quantitative easing.
With yields as low as they are in Germany, other investors are looking to North American bond markets for higher yield (with similar credit quality) driving prices higher and yields lower.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist