Germany has sold a tranche of bonds that pay no interest, reports Adam Samson in the Financial Times. In a further sign of the mania gripping the bond market, Berlin issued €3.15bn of "zero-coupon" ten-year debt last week.
So investors are willing to miss out on annual interest payments to hold German paper, considered Europe's safest asset. The auction finished with a negative yield of 0.26%, meaning that buyers would lock in a small loss if they held the paper until maturity. This is the second time that Germany has managed to issue such zero-coupon debt.
Worldwide, more than £10trn-worth of government and some corporate bonds are now trading on a negative yield. The phenomenon is underpinned by quantitative-easing policies from central banks that have seen them buy up trillions of dollars of debt, regardless of the price.
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
The US Federal Reserve, for instance, owns $2.1trn in Treasury bonds. The mania for bonds means that more than a dozen supposedly high-risk corporate junk bonds are trading in Europe on a negative yield, notes Paul Davies in The Wall Street Journal. "Ultra-loose monetary policies have turned debt investing into a choice about how to lose the least amount of money."
Many will still be hoping for a profit, of course. The German ten-year bond, for example, has traded on yields as low as 0.40% this month. Those who bought the asset on a negative yield may still realise a capital gain so long as they can sell it on at a higher price to a "greater fool" willing to take on an even worse rate of return.
Investors are betting that central-bank activism has abolished risk, says Robert Burgess on Bloomberg. Yields on two-year Italian debt fell below 0% this month. This in a country "on the verge of fiscal crisis" barely a month ago. "Logic has been suspended."
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
