Investors are going bonkers for bonds

In a further sign of the mania gripping the bond market, Germany issued €3.15bn of zero-interest ten-year bonds last week.

German Reichstag building ©

German debt is deemed Europe's safest asset

German Reichstag building ©

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.

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."

Recommended

Which assets will benefit as the “jam tomorrow” bubble pops?
Investment strategy

Which assets will benefit as the “jam tomorrow” bubble pops?

With tech stocks, cryptocurrencies and many other “long duration” investments crashing hard, the “jam tomorrow” bubble looks to be bursting. John Step…
24 Jan 2022
The charts that matter: the start of the big crash?
Global Economy

The charts that matter: the start of the big crash?

US tech stocks fell further this week, more than 10% down on their November high. There’s what happened to the charts that matter most to the global e…
22 Jan 2022
Tech stocks teeter as US Treasury bond yields rise
Tech stocks

Tech stocks teeter as US Treasury bond yields rise

The realisation that central banks are about to tighten their monetary policies caused a sell-off in the tech-heavy Nasdaq stock index and the biggest…
14 Jan 2022
The charts that matter: markets start the year with a crash
Global Economy

The charts that matter: markets start the year with a crash

As markets start 2022 with a big selloff, here’s what happened to the charts that matter most to the global economy.
8 Jan 2022

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022