German bond prices could fall as much as 35 percent when the crisis in the euro zone comes to a head and their safe haven status becomes less attractive, Carl Weinberg, Chief Economist at High Frequency Economics said on Friday.
Yields on German government bonds have fallen to record lows as investors, averse to the high degree of risk in currently very volatile markets, look for safe assets.
10-year Bund yields have fallen below 1.2 percent and yields on 2-year German Bunds are at 0.0025 percent.
That compares with yields of around 7 percent for Spain, a level which many analysts say is unsustainable but which remains stubbornly high due to the country’s high levels of debt as well as an unfolding banking crisis.
Germany’s safe haven status has become so ingrained that it even paid no interest to borrow over two years last month, the first time this has happened for a bond with a maturity date 2 years away.
“Bund yields have reached unsustainable lows,” Weinberg said. “When we see numbers like this, we start to get the same queasy feeling in our gut we had when the NASDAQ breached 4,000 back in 2000, or when house prices exploded in 2005,” he warned.
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