German bunds are at it again, sinking close to their all-time lows this week as the full effects of the European Central Bank’s new QE-max programme hit home.

The bund is very close to the 0.049bps record touched in April 2015, which followed the launch of the ECB’s bond-buying programme.

But caution is being urged, as the last time the bunds sank this far the market whipsawed back quickly, leading to some big losses.

In June, barely two months after yields plumbed an all-time low, the bund experienced a massive sell-off that pushed up yields. Yields, which move inversely to price, soared by a whole percentage point in just a month.

Treasury-bund spread

The collapse in bund yields comes after the ECB ramped up its asset purchases, splurging out on €80 in bonds each month, which now include corporate debt as well as top-rated government paper.

Analysts reckon the ECB will end up owning around a quarter of all government debt in the Eurozone. It’s not quite like the Bank of Japan snapping up every JGB (whose yields are now negative), but it is a concern for liquidity.

Moreover, Peter Praet, the ECB’s chief economist, said last week that the bank can yet do more to counter futures shocks. We already have negative rates, and helicopter money is not off the table.

All things being equal, ultra-low German yields would mean a bigger differential between the bund and US 10-year Treasury bonds; but the dovishness from the Federal Reserve is helping to drive down the yield on US paper, too.

The spread between the bund and US Treasuries hit a 16-year high in November last year, as anticipation the Fed would raise rates drove a wedge between US and German paper.

However, having embarked on tightening in December and predicting rates would rise four times this year, Fed officials are now urging caution.

Despite stronger US numbers, it seems policymakers don’t want a repeat of the kind of market spasms that marked out Q1.

Based on Fed funds futures, the likelihood rates will rise when the FOMC meets in April has all but disappeared. Bets the Fed will hike in June have also tumbled to around 20%.

With the ECB buying up so much euro debt, investors seeking safety are piling into US Treasuries at quite a lick, pushing yields close to one-year lows.

Where the bund-Treasury spread goes now is anyone’s guess, but after such a vicious snapback in bund prices last year, traders need to be careful.

UK Gilts

Meanwhile, the hunt for yield continues in Britain, but even here investors are getting record low returns on government paper.

An auction of UK 10-year gilts produced an all-time low yield of 1.514% as demand rose to its highest in 18 months. While sterling has suffered a sharp sell-off ahead of the EU referendum in June, credit markets seem a little less worried about the possibility of Brexit than their forex cousin.