Tags: German | bonds | lose | luster

German Bonds Begin to Lose Their Luster

Tuesday, 26 Jun 2012 07:40 AM

By Dan Weil

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For months German government bonds, known as bunds, acted as a safe haven for investors, just like their U.S. brethren – Treasurys. But now bunds are starting to sag.

Ten-year bund yields have surged to 1.46 percent from a record low of 1.12 percent June 1. The 10-year Treasury yield hit an all-time low that same day – 1.44 percent. But it has risen more mildly, to 1.61 percent.

Bunds are suffering for several reasons, The Wall Street Journal reports. First, some investors worry that Germany’s financial health will be damaged by all the aid it must dole out to weaker European economies buffeted by the debt crisis.

Second, some investors think German bond prices overshot on the upside. And other investors are simply opting for bonds with higher yields, such as Treasurys.

The bund sellers include big-time money managers BlackRock, Pimco, and ING Investment Management.

Pimco’s legendary Co-chief Investment Officer Bill Gross says that Germany’s bond market might ultimately suffer the same sort of attack as other major European economies, such as Spain and Italy.

"German Bunds join the maelstrom," he writes on Twitter, seeing "very few scenarios in which they do well."

To be sure, there’s no guarantee bunds will keep falling.

They surged Monday with the 10-year yield dropping 12 basis points, after legendary investor George Soros warned that the euro is at risk of imminent collapse.

Some investors continue to view bunds as a safe haven from that risk.




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