Yields on the 10-year government debt of Germany dipped below zero on Tuesday for the first time on record, in a dramatic sign of the outsize effect of central-bank policy and investors' search for safe havens.
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That search for safety accelerated on Tuesday as concerns that Britain could vote to leave the European Union next week continued to rattle global markets, pushing yields down on a range of government debt from Japan to the U.K.
The yield on the bund fell to minus 0.03% when European markets opened, from around 0.02% at Monday's close, according to data from Tradeweb. With political risks around the world mounting, investors see room for yields to fall even further.
Government-bond yields have been falling for the past year across the developed world as investors look for safety and central banks push interest rates close to zero and into negative territory. The European Central Bank has contributed to the fall in bund yields through its massive bond-buying program, aimed at lowering financing costs across the eurozone.
More recently, the U.K. referendum has added to the flight to safety as opinion polls increasingly point to a so-called Brexit on June 23, spurring worries about a stretch of uncertainty that could hurt the global economy.
"The fact that Brexit is now perceived as a possibility is a total game-changer, and it's very difficult to estimate the macroeconomic impact," said Franck Dixmier, global head of fixed income at Allianz Global Investors.
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For investors, the bund's move below zero highlights an investment world of increasingly low returns. The 10-year bund joins some $10 trillion worth of global sovereign debt with negative yields.
On Tuesday, government bond prices continued to rise across the developed world. Yields move in the opposite direction to prices, so higher market prices for bonds mean lower yields. The yield on the British government's 10-year debt hit 1.144%, a record low, and the Japanese government's 10-year benchmark bond yield fell even further into negative territory, below -0.16%.
Investors believe that yields on the longer-term debt from countries like Belgium, the Netherlands and Austria could be next to fall below zero.
"It's psychologically very different," said Paul Flood, a multiasset manager at Newton Investment Management. But even with government debt offering negative yields, other assets could still offer even lower returns, he said.
European and most Asian equity markets are down this year, while the yields on investment rated corporate bonds have also been pushed lower.
The 10-year bund joins a swath of other German government debt currently offering a zero or negative yield. Last week, German lender Commerzbank AG estimated that almost two-thirds of outstanding German sovereign debt now yields below minus 0.4%.
Bunds have been a popular safe haven since at least the 1970s, when the German Bundesbank gained kudos for avoiding the high inflation of other advanced economies.
Germany is one of only a handful of countries with a triple-A rating from all the major rating firms and has a constitutional law that limits future annual deficits to 0.35%. It is also the biggest of those countries, meaning it has a comparatively large amount of debt that makes that makes it easier for investors to buy and sell, adding to its attractiveness.
In an era when the yields on government debt have been plummeting to almost uncharted territories, analysts have long bet that the 10-year bund would fall below zero.
That nearly happened in early 2015, but yields spiked back up, in what became known as the "bund tantrum," from nearly zero to 1% in less than two months when credit across Europe was sold off and yields jumped. But yields soon headed lower again.
Yields move in the opposite direction to prices, so higher market prices for bonds mean lower yields.
Some analysts believe that bund yields could go even lower.
"If there's more Brexit uncertainty ahead of the vote, there's no reason that the 10 year yield can't fall lower," said Joerg Kraemer, chief economist at Commerzbank AG.
Analysts also note that bund prices tend to rally over the summer.
"A seasonal bullish phase has occurred since 2004," said analysts at BNP Paribas in a research note. "Bunds will soon enter that bullish phase."
The French bank said that yields on the 10-year bund have fallen by an average 0.14 percentage point from the third week of June to mid-July for several years.
But the frenzy of buying that has pushed so much debt into negative territory has sparked warnings about the potential of large losses if interest rates rise. That is particularly so when longer-term debt, such as the 10-year bund, moves below zero.
The longer the maturity, the more sharply a bond's price falls in response to a rise in rates. And with yields so low, buyers aren't getting much income to compensate for that risk.
Riva Gold and Friedrich Geiger in Berlin contributed to this article.
Write to Mike Bird at Mike.Bird@wsj.com