Switzerland - which is not part of the euro zone - became the first government in history to sell a benchmark 10-year sovereign bond at negative interest rates last week, according to the Financial Times. Germany looks likely to be the first euro zone country to follow suit, with yields at record lows. Its 10-year crept to 0.14 percent Tuesday morning.
Analysts and economists have spent months debating the issues surrounding negative yields and how they may be distorting markets. It is widely thought that quantitative easing by the European Central Bank (ECB) – which sees it purchase bonds in secondary markets - has accentuated the move.
The team at Goldman Sachs, led by Francesco Garzarelli, said in a note Tuesday that possible "collateral damage" from low long-term yields could be the solvency positions of German pension and insurance companies, which are the traditional buyers of these assets.
"(This) will be dealt (with) by the local regulator and, eventually, the fiscal authorities, but (will) not lead the ECB to moderate the overall pace of asset purchases," Garzarelli said in the note. He added that the ECB would only alter its portfolio purchases away from German bonds in the event of extreme dislocations.