The flight into dodgy sovereign debt
German bond yields are down to all-time lows as market turmoil causes investors to pile into sovereign debt, no matter how overpriced.
German bond yields are down to all-time lows as market turmoil causes investors to pile into sovereign debt, no matter how overpriced. The yield on the benchmark ten-year bond touched 0.219% on Monday, with investors apparently unperturbed by the negative yield. Bond yields move inversely to prices, so when yields fall even below zero that still implies a capital gain for bond holders.
Bond bullishness was not limited to Europe's most rock-solid country. Investors have even been lapping up Italian debt, notes Nikou Asgari in the Financial Times. Rome issued €4.6bn of bonds last week, with "demand for the five-year bond" at its highest level since August last year. Ten-year Italian yields hit a two month-low of 2.48% this week.
Yet Rome's borrowings have reached an eye-watering €2.4trn, or 132% of GDP. Far-right League leader Matteo Salvini recently announced plans to spend a further €30bn on a flat tax, a clear provocation at a time when the European Commission has already warned Rome about its profligacy. "Italy's debt is less sustainable than that of Greece," says Simona Gambarini of Capital Economics. "If growth in Italy deteriorates, concerns about its debt sustainability are likely to intensify." That means that, extraordinarily, "it may now be more risky to hold Italian bonds than Greek ones", writes John Ainger on Bloomberg.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
LSL Property Services: a profit-machine in the property sector
LSL covers every area of the residential real estate market and should thrive after its shake-up
By Rupert Hargreaves Published
-
Harworth doubles profit as revenue soars – should you buy?
Harworth, a specialist property developer, is well-aligned with government policies, with revenue expected to rise by over 50% this year, and a further 30% the year after.
By Dr Matthew Partridge Published