Since the beginning of the Eurozone debt debacle, Germany benefited spectacularly from its reputation as safe haven. While yields were spiking in other Eurozone countries, German bond yields were dropping; and even 10-year bond yields dipped below the rate of inflation. So perhaps when it offered €6 billion in 10-year bonds at an average yield of 1.98%, a record low for auctions, it expected them to fly off the shelf. But they didn’t.

“A disaster,” analysts and the media proclaimed worldwide. “Debt crisis now at German doorstep,” MarketWatch called it. Investors only bought €3.6 billion in bonds of the €6 billion offered. The Bundesbank had to retain the remaining €2.4 billion to be sold in the secondary markets. Not unusual under the German system: the Bundesbank had propped up six of the eight most recent bond auctions. But the magnitude is nevertheless a shocker. The 39% that the Bundesbank got stranded with is the highest ratio on record since Germany started issuing bonds in euros.

“There is absolutely no problem,” said a spokesman for finance minister Wolfgang Schäuble to calm the waters. Germany will have to issue €275 billion in bonds next year to fund ongoing deficits and pay off maturing debt. And calm waters would be nice.

So maybe it was a disaster. Or maybe, it was simply a sign that investors stepped back from Eurozone mass hysteria, checked their data, and pulled out their calculators. And suddenly, that below-inflation yield of 1.98% looked very unappetizing.

They might have remembered some other things. Model Economy Germany was suffering not long ago from stagnation that lasted many years. It was also one of the first EU members to violate the Maastricht Treaty’s criteria that limit deficits to 3% of GDP and gross national debt to 60% of GDP. Currently, Germany’s debt is over 80% of GDP, just a hair lower than France’s and only about average for the Eurozone.

“The level of German debt is troubling,” said Luxembourg Prime Minister Jean-Claude Juncker a few days ago. His country’s debt is only 20% of GDP.

But Germany’s current deficit of 1.3% of GDP is low and is expected to decline further, perhaps even become a surplus. In theory. In reality, politicians, drunk with surplus euphoria, are already ratcheting up spending plans. Just wait till the recent collapse in the all-important export orders worms itself into GDP numbers and tax receipts. Big deficits will be back.

And there are other reasons why investors might have lost their previously ravenous, practically insatiable, and certainly irrational appetite for “safe-haven” bunds. Among them:

– Germany might get sucked into the whirlpool of Eurozone sovereign bonds by guaranteeing more and more of them via European bailout funds and Eurobonds. All would transfer risk to Germany’s own finances.

– Or the opposite: Germany might not do enough, fast enough, to save the euro, and as a consequence, might get sucked down as well.

– Germany might allow the ECB to print unlimited amounts of money and solve the debt crisis once and for all through inflation and devaluation.

– Or worse for bondholders: Germany might break away from the eurozone and issue its own currency either within a mini-eurozone or alone. The ECB would then be free to solve the debt crisis of the Eurozone’s remaining members by monetizing their sovereign debt. The euro might well lose 30-50% of its value over the next decade, as the dollar has done. And investors who’d bought euro-denominated 10-year bunds at a yield of 1.98% would get screwed royally.

In this scenario, Italian 10-year bonds with a yield of over 7% would compensate investors adequately for the expected inflation. And risk of default would return to near zero if the ECB starts monetizing the debt of its members.

So, very prosaically, investors may just be sick and tired of handing over their money in exchange for paper that will guarantee them a loss after inflation. Most likely, they haven’t lost confidence in Germany, and they don’t expect the Eurozone to collapse, but simply would like to earn a tiny bit of money after inflation on a 10-year investment. That, in normal times, shouldn’t be cause for concern.

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