FRANKFURT—Investors paid a hefty price for the privilege of buying German government debt Wednesday, in a fresh sign of how the European Central Bank's monetary policies are upending the region's bond markets.

The German Finance Agency sold €3.341 billion ($4.33 billion) of a two-year treasury note at a record low average yield of -0.07%, the Bundesbank said. That effectively means investors are paying to loan money to the government. It is the first time Germany has sold two-year debt at a negative yield since December 2012....