Germany got bids for more than the maximum 5 billion-euro ($6.3billion) target at a note sale, with the yield falling to a record,as investors sought a refuge from the European debt crisis.

Germany, the only country in the euro area with a stable outlookon its AAA rating, sold 4.56 billion euros of two-year securitiescarrying a zero-percent coupon for the first time, Bundesbank datashowed today. The securities were auctioned to yield 0.07 percent.The country offered a fixed-interest payment of 0.25 percent whenselling similar-maturity notes on April 18.

Germany's borrowing costs have plunged to the lowest on recordas investors sought the nation's debt as a haven from Europe'sfinancial turmoil and concern mounted that Greece will exit theeuro area after inconclusive elections on May 6.

“The surprisingly good result illustrated a huge demand forsafety, and that's the key message of the auction result today,”said Ciaran O'Hagan, the head of European interest-rate strategy atSociete Generale SA in Paris. “This is the first time we have seena large, liquid, benchmark bond issued with a coupon of zero. Thatis symbolic of the desperate need for security in today's troubledtimes.”

Investors also bought 1.29 billion euros of index-linked bondsdue in 2013 at a so-called real yield of minus 0.24 percent.

The Federal Finance Agency, which manages debt sales on thegovernment's behalf, said after the auction that the zero couponrepresents the floor in rates for German securities as it has nointention to issue bonds with negative coupons.

Germany's existing two-year note yield tumbled to a record 0.031percent on May 18. Ten-year yields dropped six basis points, or0.06 percentage point, to 1.41 percent at 12:12 p.m. London time,after reaching a record-low 1.396 percent, also on May 18.

Germany's government bonds returned 1.4 percent this month,compared with a 0.2 percent loss from Italian securities, accordingto indexes compiled by Bloomberg and the European Federation ofFinancial Analysts Societies. Greece's bonds slumped 36 percentwhile Spain's lost 1.8 percent, the indexes showed.

'Extreme Nervousness'

The average yield on German bonds dropped to 1.43 percent on May17, the lowest since at least 1992, according to Bloomberg andEFFAS indexes. A post-Greek-election poll of 1,253 Bloombergsubscribers found 57 percent expect at least one country to leavethe monetary union this year.

“Demand was strong and this was a very good result for thesafe-haven issuer of bunds,” said Carl Heinz Daube, a managingdirector of the Frankfurt-based FFA. “The result gives, at the sametime, a picture of extreme nervousness.”

The sales took place as European leaders prepare to discuss theregion's debt crisis at a summit today. Deepening concern Greecewill exit the euro has wiped out $4 trillion from equity marketsworldwide this month and pushed average yields on Spanish debt up40 basis points.

Greece is in the fifth year of a recession that has beenamplified by austerity measures linked to its international aid,with the unemployment rate reaching 21.7 percent in February. Acaretaker government was sworn in last week to lead the country tonew elections on June 17 after an inconclusive poll propelled theSyriza party, which wants to annul the bailout, into secondplace.

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