Germany has sold 10-year debt with a negative yield for the first time since the autumn of 2016, amid fears of a worsening global economic outlook.
Investors have moved into haven assets in recent weeks on rising concerns about slowdowns in major economies, such as Germany and the US. The move intensified after the US Federal Reserve last week ditched plans for raising interest rates this year.
Demand is so high for haven assets that Berlin on Wednesday sold €2.4bn in 10-year paper with an average yield of minus 0.05 per cent, according to the German Finance Agency. The agency said it received 2.6 times more bids for the debt than it accepted.
The negative yield means that investors who bought at Wednesday’s auction and hold to maturity are guaranteed to sustain a loss. Bunds offer security during times of rising economic and political uncertainty because of the remote odds of Germany defaulting on its commitments.
The auction result came as European Central Bank president Mario Draghi hinted that the bank’s governing council could tweak its negative interest rate policy to limit its impact on banks. This policy, introduced in 2014, was designed to ward off deflation and boost lending. Banks have long blamed it for weaker profits; the ECB has instead blamed lenders’ poor profitability on the need for restructuring.
But on Wednesday Mr Draghi said: “If necessary, we need to reflect on possible measures that can preserve the favourable implications of negative rates for the economy, while mitigating the side effects, if any.”
The ECB is not considering an imminent change in the policy, according to people familiar with the matter. But top officials are weighing up the benefits of the scheme.
As part of the negative rates policy, the bank charges a 0.4 per cent levy on a portion of reserves parked at the region’s central banks. The central bank receives roughly €7.5bn a year from the levy. It could introduce a tiered deposit system and charge either a smaller levy or no levy at all, market analysts said.
François Villeroy de Galhau, governor of France’s central bank, has been the most ardent supporter of a shift in policy. Some officials, however, fear that a change in tack will be seen as a signal that the ECB is tightening monetary policy. The ECB’s interest rates have been on hold since 2016 and it has signalled that it expects rates to remain at record lows until the end of this year at least.
Highly rated government bonds from issuers ranging from Germany to Britain and the US have rallied heavily since the Federal Reservelast week ditched plans to raise rates this year. The rally accelerated later in the week on the back of gloomy data on Germany, Europe’s powerhouse economy.
The yield on the broad Bloomberg Barclays global government aggregate index has dropped 0.44 percentage points to 1.17 per cent since a recent peak in October last year.
It’s well known that rates or yields on bonds (or debt obligations) move inversely to the price of bonds, so rates are falling because more investors are buying bonds driving up their prices and lowering yields.
To open a trading account in a swiss bank with IBAN and get 10% off on your trading commissions in the first 30 days :
#fxfever.com #forex #yield # bond #debt