(MENAFN- AFP) Collapsing growth in the main eurozone economies pushed funds into the safety of German debt bonds on Thursday, causing the German borrowing rate to fall below 1.0 percent for the first time ever.
Shortly after bad second-quarter figures for the German and French economies were published, the interest rate indicated by German 10-year bonds fell to 0.998 percent.
The French 10-year bond was also showing a record low rate or yield of 1.390 percent.
That is a higher rate than for Germany to reflect the higher risk attached to the French economy which, despite this sign of confidence, faces deep economic challenges.
The growth data for Germany, with the biggest eurozone economy, showed that activity shrank by 0.2 percent in the quarter, although analysts said this was most probably a short-lived blip.
In France, with the second-biggest economy in the eurozone, growth was zero for the second quarter running, reflecting what analysts say are deep and enduring structural problems.
The number three economy, Italy, went into recession last week.
The latest figures drove some investment funds into the shelter of German bonds, the benchmark for the eurozone debt market.
The signs that eurozone growth has crumpled, together with a risk of deflation, could push the European Central Bank to take extra action to inject cash into the single-currency economy, which would tend to put downward pressure on interest rates.
In any case, German debt bonds have been in demand in the last few days by investors seeking safety from the risks of sanctions connected to Russia's support for insurgents in Ukraine.
The United States and European Union have applied sanctions against Russia, which has responded in kind, and the effects on confidence of this is one of the main reasons why the German economy has stalled, economists say.
Government debt is issued with a fixed rate of interest for the life of the bond on the secondary market.
If money flows into the instrument, pushing up its price, the fixed interest as a percentage of the new price automatically falls, indicating the rate the government will have to pay when next it borrows.
The same process works in the opposite direction: falling risk draws some funds out of bonds, the price falls, and the effective interest or yield rises.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.