When you can't stand the heat, get into the Bund market. Investors watching Russia stumble to the brink of financial collapse in the past week did what they always do in a crisis - they bought German government bonds (Bunds) in search of the safest haven for their money.

Although US Treasury bond prices have also surged in response to the Russian meltdown, the most dramatic effect has been seen in the German market.

The yield on all maturities of German Bunds, from two-year to 30-year bonds, has hit record lows over the last week, with the 10year benchmark dropping to a yield of just 4.2 per cent - a postwar record. In contrast, investors have generally spurned French and Italian government bond markets while the Irish bond market has also fared less well than its German counterpart.

"This should put an end to all argument about which government bond will be the benchmark in euros after European monetary union," said Kirit Shah, chief market strategist at Sanwa International in London. "The benchmark in euros will be German government bonds."

The degree of investor bias towards Bunds has been dramatic. Before the Russian crisis, German government bonds actually traded at a spread (risk premium) over their French government counterparts of between 5 and 10 basis points (a basis point is a hundredth of a percentage point).

This was partly due to the fact that the French government provided tax breaks to French insurance companies which put their money in the French government bond market. These incentives were removed earlier this year, prompting many French fund managers to switch their investments into the stock market.

More important, though, the scramble for safety in the last few weeks has shown the extent of investor preference for German bonds. The French government benchmark now trades at a significant spread to its German counterpart. The Italian government bond has widened even further from a spread of 23 basis points over Bunds earlier this year to almost 60 basis points at one point last week.

In Dublin, the spread on Irish bonds widened to more than 40 basis points in recent days from a low of 10 basis points earlier this year and around 20 basis points prior to the current crisis. Analysts said that when investors were seeking safe havens, they tended to look to big liquid markets like Germany and smaller markets like Ireland tended to be forgotten.

"Bunds were the big beneficiary when this [Russian] crisis started because, when all is said and done, Germany is the best credit risk in Europe," said Philip Tyson, bond strategist at HSBC Markets.

That will not be a welcome development for France, which has been pushing the claims of the OAT market for benchmark status. Benchmark status matters for Paris, which is in danger of being sidelined by both London, which is Europe's financial capital, and Frankfurt, which is home to the new European central bank.

Being the benchmark market also offers the prestige of being able to influence the direction and role of Europe's debt markets, an increasingly important area of the continent's single capital market created by the euro.

However, much of the activity in government bonds is driven by what happens in the futures markets, where investors buy and sell contracts to deliver bonds at a certain future date. In this area, the Bund market was the clear winner last week. Turnover in bund futures exceeded 800,000 contracts a day once or twice last week as investors switched into Germany from more peripheral markets.

In contrast, the French bond future has remained stuck on a daily turnover of just over 100,000. "The bund futures contract is clearly the most liquid, and last week investors were looking for liquidity," said Lorenzo Codogno, head of European economics at Bank of America.

However, a large part of the price rise was caused by a technical squeeze in the Bund market. There simply were not enough 10year Bunds available in the cash market to cover demand for them in the futures market.

Some observers said this squeeze threw into sharp relief the shortcomings of the Bund market as the benchmark for the euro. To operate as a benchmark, in other words, there must be plenty of supply. Yet, because of budgetary cuts in Germany before EMU, there are not enough bunds to go around.

"The technical squeeze demonstrated that the Bund is not necessarily going to be the best benchmark if it is going to be knocked about by these types of factors," said Glenn Davies, bond strategist at Credit Lyonnais.

Some analysts say only a basket of several European government bonds could provide the liquidity to serve as an effective benchmark. Whatever the answer, the markets still clearly see Germany as the safest credit in Europe.