Reflation Trades Return German Bond Market to Normalcy

Germany had to pay to borrow money for the first time in nearly a year as market bets on global reflation have pushed up bond yields.

The nation sold 1.2 billion euros ($1.45 billion) of 30-year debt at an average yield of 0.1%. That was the first such auction since March where yields were above zero, while demand was the lowest in almost a year. Yields have been dragged higher by their U.S. counterparts, spurred by Treasury Secretary Janet Yellen’s call for stimulus to drive the recovery from the coronavirus crisis.

Reflation Trades Return German Bond Market to Normalcy

Wednesday’s auction came as German 30-year yield is poised for its biggest monthly increase on the secondary market since 2016, having turned positive in February for the first time in five months. The last such sale in January saw average yields of -0.13% and low demand.

“The backdrop is challenging,” said Citigroup Inc. strategists including Aman Bansal. However, they still see some value in the bond compared to its closest peers.

German bonds stayed higher after the auction, with the yield on 30-year debt down two basis points at 0.14%. The country’s ability to effectively borrow at no cost drew the ire of former U.S. President Donald Trump in 2019.

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