A weeklong surge in government-bond prices has taken 10-year yields in Europe's strongest economy to the brink of once-unthinkable territory: negative interest rates.

The German bund's yield hit 0.08% Tuesday, the lowest in a year and just a hair short of the all-time low for a closing yield of 0.073%, according to Tradeweb.

The plunge in German bond yields has resulted from the latest bout of aversion to risk on the part of investors, as well as an increase in the European Central Bank's bond-buying program and the ECB's embrace of negative rates. The programs increase demand for debt and drive down yields, which fall when prices rise.

Tumbling European bond yields could add to pressure on U.S. interest rates, even at a time when Federal Reserve officials are going out of their way to warn the markets that they may be underestimating the likelihood of further Fed rate increases this year.


Lower bond yields in the U.S., Germany, the U.K. and Japan reflect a situation that has been confounding many investors and policy makers for years: the resistance of tepid global demand for goods, subpar growth and low inflation to increasingly expansive monetary policy.


Mr. Cronin said that should the German 10-year yield fall below zero, it would generate more pressure for investors to hunt for positive yields, which means they would keep taking increasing levels of both interest-rate and credit risks.

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