I used to trade on a fixed income desk, which includes trading bunds.
What you are quoting is the coupon, not the yield. What this means is that back then if you bought 100 worth of the bond, you'd get a promise from the government to give you 4 back each year, plus the principal when the bond matured.
It is not quite the same as the yield.
Now consider if later a bond came out that paid 8 each year per 100 that you invested. The ones that pay 4 are still around. What would happen?
Well you would be able to buy the old 4 coupon bonds at 50 from the old buyers (the government will still give you 100 at the end). That is the price that makes the yield the same.
Why is this the case? Why don't the people who bought the 4s simply insist on getting 100 for their bonds? Because if they did, everyone would just spend their 100 EUR on the 8s. And that would continue to be the smartest thing to do until the 4s yielded the same as the 8s.
Simplified a bit, so no convexity, term premium, on-the-run premium, repo rate, futures, basis and so on. But worth googling if you're interested.
What you are quoting is the coupon, not the yield. What this means is that back then if you bought 100 worth of the bond, you'd get a promise from the government to give you 4 back each year, plus the principal when the bond matured.
It is not quite the same as the yield.
Now consider if later a bond came out that paid 8 each year per 100 that you invested. The ones that pay 4 are still around. What would happen?
Well you would be able to buy the old 4 coupon bonds at 50 from the old buyers (the government will still give you 100 at the end). That is the price that makes the yield the same.
Why is this the case? Why don't the people who bought the 4s simply insist on getting 100 for their bonds? Because if they did, everyone would just spend their 100 EUR on the 8s. And that would continue to be the smartest thing to do until the 4s yielded the same as the 8s.
Simplified a bit, so no convexity, term premium, on-the-run premium, repo rate, futures, basis and so on. But worth googling if you're interested.