On Wednesday, the U.S. five-year real yield matched a record low, while Italy’s two-year yield fell below the European Central Bank’s deposit rate of minus 0.5% for the first time. Benchmark rates on Greek debt dropped to an all-time trough, the entire German yield curve turned negative this week and Japan’s 10-year bond yields declined to zero, a level last seen in December.

Bonds have rallied this week as a spike in virus infections worldwide spurred demand for safety. Government debt in the U.S., Europe and Japan has also been buoyed by expectations that major central banks will maintain accommodative policy despite signs inflation is quickening.

“It’s the coronavirus-induced uncertainty that has brought yields down” globally, said Makoto Yamashita, chief economist at AU Jibun Bank Corp. in Tokyo. While local investors may grow reluctant to buy bonds with yields at 0% or below, “they may shift to longer-dated debt instead for higher carry,” he said.

Treasury yields fell across the curve, with 10-year yields down four basis points to 1.14% as of 8:56 a.m. in New York. The five-year inflation-adjusted rate matched a record low on Wednesday, after the 10-year maturity dropped to an all-time trough this week. 

The moves followed data that showed U.S. companies added far fewer jobs than expected in July, with payrolls posting the smallest gain in five months, according to ADP Research Institute. 

Yield Milestones
In Europe, Italy’s two-year yield extended declines after ECB Governing Council member Martins Kazaks said the central bank’s September meeting would be much too early for a decision on whether to extend or phase out the pandemic bond-buying program.

The drop in Italian yields “is likely to mean investors increasingly look to extend maturity for yield enhancement,” Mizuho International Plc strategists including Peter Chatwell wrote in a note.

Kazaks’ comments also weighed on German 30-year yields, which dropped to as low as -0.063%, a six-month low. That kept the entire yield curve below zero for the first time since February.

In Japan, the benchmark 10-year yield dropped 1.5 basis points on Wednesday, extending declines from as high as 0.175% in February. The latest move comes as a catch-up after Tuesday’s trading session saw no trades in 10-year bonds for the first time since June 1, a sign the Bank of Japan’s yield-curve control continues to strangle market activity.

A BOJ bond-purchase operation on Wednesday drew fewer offers to sell one- to five-year tenors than the previous operation for the sector on July 21, indicating investors were reluctant to offload their holdings.

“The results of the BOJ’s bond-purchase operation have helped push the 10-year yield to zero,” said Keisuke Tsuruta, a strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. The results confirm the strong demand for bonds, he said.

--With assistance from Stephen Spratt, Daisuke Sakai, Chikako Mogi and James Hirai.

This article was provided by Bloomberg News.