Advertisement

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Recommended

Visit/economy/global-economy/601425/the-charts-that-matter-the-us-and-china-the-calm-before-the-storm
Global Economy

The charts that matter: the US and China – the calm before the storm?

John Stepek looks at how the rising tension between the US and China over Hong Kong has affected the charts that matter the most to the global economy…
30 May 2020
Visit/investments/bonds/government-bonds/601413/gilt-yields-head-below-zero
Government bonds

Gilt yields head below zero

Yields on gilts – UK government bonds – have gone negative, meaning investors are paying the Treasury to borrow money from them.
28 May 2020
Visit/investments/stockmarkets/601351/curiouser-and-curiouser-20-years-in-the-markets
Stockmarkets

Curiouser and curiouser: 20 years in the markets

Central banks have been interfering with market and economic cycles for two decades, undermining capitalism and storing up huge trouble for the future…
21 May 2020
Visit/investments/bonds/government-bonds/601326/the-bond-bubble-keeps-inflating
Government bonds

The bond bubble keeps inflating

Most major stockmarkets remain down on the year, but government bonds continue to gain ground.
15 May 2020

Most Popular

Visit/economy/global-economy/601420/james-ferguson-the-virus-the-lockdown-and-what-comes-next
Global Economy

The MoneyWeek Podcast: James Ferguson on the virus, the lockdown, and what comes next

Merryn talks to MoneyWeek regular James Ferguson of Macrostrategy Partnership about what's happened so far with the virus; whether the lockdown was th…
28 May 2020
Visit/investments/stockmarkets/601423/as-full-lockdown-ends-what-are-the-risks-for-investors
Stockmarkets

As full lockdown ends, what are the risks for investors?

In the UK and elsewhere, people are gradually being let off the leash as the lockdown begins to end. John Stepek looks at what risks remain for invest…
29 May 2020
Visit/investments/property/601411/can-the-uk-housing-market-escape-a-slump
Property

Can the UK housing market escape a slump?

The Bank of England is predicting a 16% slump in house prices.
29 May 2020