Yields on benchmark German government bonds are within touching distance of zero for the first time in almost three years as Europe's economic performance stalls and concerns over global trade spur investors toward havens.
A no-deal Brexit, upheaval in Italian politics or a deteriorating labor market are among the risks that could turn bund yields negative, according to strategists.
Subzero yields on 10-year bonds would mark a step back in time — to 2016 — when the European Central Bank was pumping money into the economy in an effort to reflate it. Now investors are seeking safety as they wonder if the institution has missed its chance to lift its deposit rates from a record-low -0.40% before the next global downturn strikes.
"If the German consumer continues to retrench, then bund yields can go below zero," said John Taylor, a money manager at AllianceBernstein, which oversees $550 billion in assets. "I thought the end of quantitative easing would have had a bigger impact but it appears that the disappointing data has continued to push yields down further."
German 10-year yields were at 0.12% Wednesday, having touched 0.08% last week. They fell below zero just ahead of the Brexit referendum in June 2016, before recovering from October that year. Yields on German tenors from short-term bills to bonds up to eight years are already negative.
Industrial production data Wednesday added to fear of an economic contraction in the region, falling at the fastest pace since the financial crisis.