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German Bond ETFs Rally as 2-Year Yield Hits Zero

tlydon@globaltrend.com (Tom Lydon)

ETFs designed to track German sovereign bonds rallied Wednesday amid Eurozone debt jitters as the yield on two-year notes dropped to zero for the first time ever.

PowerShares DB German Bund Futures ETN (BUNL - News) was up nearly 2% in U.S. afternoon dealings. The exchange traded note has seen trading volume increase sharply the past month on concerns Greece will leave the euro.

The euro fell below $1.24 on Wednesday “as worries mounted about Europe’s debt crisis and the effective yield on the German government’s two-year bond yield touched zero, as investors chose the option of getting their money back over earning a high return,” CBS News reported.

The average yield on German two-year government notes since the euro’s inception is 2.79%, Bloomberg News reported.

Investors were seeking safe havens while Spanish bond yields spiked as high as 6.7% on worries over the country’s finances and banking system. [German Bond ETF Volume Rises as Yields Hit Record Low]

In bond markets, nervous investors piled into German bunds and U.S. Treasuries, pushing yields to record lows. [Treasury ETFs Hit All-Time Highs]

“It is quite possible that in a panic situation, people would pay for safety,” said Stuart Thomson, a fund manager at Ignis Asset Management, in a recent Dow Jones Newswires story. “Clearly, if there is a crisis with Greece withdrawing from the Eurozone, it is highly possible that the bund yield would go below zero.”

Other exchange traded products that track German bonds include PIMCO Germany Bond Index Fund (BUND - News), ProShares German Sovereign/Sub-Sovereign ETF (GGOV - News) and PowerShares DB 3x German Bund Futures ETN (BUNT - News), which is a leveraged exchange traded note.

PowerShares DB German Bund Futures ETN