Investors race for German bonds to avoid the mayhem

Investors have rushed to snap up German government bonds which pay a gross return of just 0.05 per cent, but which are seen as more secure, says divisional director of Brewin Dolphin, Leeds, Martin Payne.

With uncertainty in Europe because of Greece’s debt problems, which could result in it leaving the euro and the economies of Italy, Portugal and Spain in a desperate state, investors have been taking a more cautious approach to investment, he said.

The euro has also come under pressure and fell to a three-and-a-half-year low against sterling.

British consumers are also concerned that the crisis will have a negative effect on their finances, but Mr Payne says it is probably too late to bale out now and that selling investments could simply crystallise losses.

He adds that growth continues outside the eurozone in Asia and other merging economies, which is where many British ISA investment companies generate their earnings from outside the UK.

On a positive note, Mr Payne said shares in Tesco, Sainsbury and HSBC continue to offer attractive yields even though the Bank of England base rate is at just 0.5 per cent.

The other light on the horizon is America, where it is expected that the Federal Reserve will pump money into the US financial system to help keep its economy moving.