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A NEW AUCTION of German government debt this morning was so hotly prised that the German government is officially being paid to borrow their money.
An auction of €3.9 billion in short-term bonds, maturing in six months time, attracted such investor interest that the bonds have an average yield of -0.0122 per cent – a negative yield.
The yield – i.e. the interest rate – of a bond is determined by the supply and demand of individual investors, and falls as demand for a certain bond grows.
Although the German government only received bids for around €7 billion of bonds, the interest rate proposed by each borrower was so low that the average bond now carries a negative yield.
This means that investors are satisfied with the prospect of paying a small premium for the guarantee that their cash will be (almost entirely) returned to them in six months – and indicates that investors are now very fearful about the prospect of a default in other countries.
In short, Germany – through borrowing money on a short-term basis – is now a bank where depositors are ‘warehousing’ their cash to ensure that it will still be there in six months’ time.
In the last similar auction of six-month bills, Germany paid a mere 0.001 per cent interest rate, with demand almost four times greater than supply.
The unprecedented low cost of short-term borrowing has seen the cost of 10-year German borrowing reach 1.888 per cent – compared to 7.087 per cent for Italy.
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A world populated by over 7 Billion people is being screwed by a few paranoid financial freaks.
thats true loyallirish, but when has it been any different?
@Dave Harris: Supply and demand suggests most strongly that it its the consumers who should control things.
Emigration, higher taxes and higher prices, it looks like the psycho bond holder is emperor for a while.
You’re still right Loyallirish, but what you say is the way it should be rather than what it is
Wow, I never realised or just didn’t understand enough to know how paranoid investors were. This brought it home.
Good to see someone is doing well out of this crises. Who said there was no such thing as money for free….
Germany through the Euro got an artificially weaker currency than it deserved. Then it used that currency to drive a massive export boom. Now that the Euro is falling in value it makes its exports to the rest of the world cheaper. Everyone bar Germany, Austria, Finland, Holland got a currency that was too strong for them to varying degrees. The worst hit being Spain and Italy.
No doubt the Germany with their high productivity, Social democracy, great public services etc etc is a country to emulate. It still does not change the fact that over half of Europe is going to be condemned to perpetual low growth by the Euro.
France’s trade deficit is being hit as well. Paris will realize in the future that while they may have felt that the EU was about sharing control of Europe that it has not worked out like that. When Pierre on the street realizes that he is going to be very peeded off with the leadership of his country and the lies they have been spinning.
Wish my Mortage was on a German tracker rate
Getting a tracker rate is sick to begin with
Just how is a tracker “sick” please explain.
sick = great .. bloody young people and their hip, daddy-cool language!
Thanks for explaining to an auld fella Desmond.
So Germany is the bank of Europe. So if the compact treaty is ratified it will be the home of the federal reserve of Europe is that what is being shoved down our throats or is it greater fiscal interference? Or both. Anyway if the euro is going to fail why bother buying German bonds. Anyway merkel has got to love this situation, it’s a case of Germany being payed for it’s bonds instead of the other way around. Is it just me or have things gone from the sublime to the ridiculous in an economic sense. The past 4 years have proved that current economics are not working for the majority, it is working for a minority, the hedgers the management, governments etc so when is economics going to help the people again???
I cant wait for this crisis to be over so I can go back to letting the rich getting richer and the poor get the picture in peace.
This situation is getting crazier and it makes my head hurt
lol, but of course you can have a negative yield when you are buying the bonds with freshly printed money. Keynesian economics gone mad.
My head hurts
Don’t worry Dr Kenny will issue the pills next week when he clears the A and E crises backlog.
Another episode in the comedy that europes economy is becoming.
In december, the ECB injected €480 billion into europes banks in the hope of freeing up credit to banks and hopefully Italy and Spain.
This month we find that the banks have placed record deposits with the ECB and are clambering for German bunds while continuing to avoid one another and the PIIGS.
Ironically, Germany the nation most opposed to providing ECB funding for sovereign borrowing is benefitting indirectly from ECB funds.
http://www.eubusiness.com/news-eu/eurozone-ecb-bank.efu/
You can take a horse to saltwater but you can’t make them drink.
http://www.eubusiness.com/news-eu/eurozone-ecb-bank.efu/
This is not a new departure.Certain Swiss banks have paid negative interest rates for many years in the form of fees to keep money on deposit
I think the analysis is a little over complicated. In my view German Bond yields have gone negative because foregn investors believe that the euro value has fallen to far and expect a bounce back against the dollar & GBP over the next 6 months. It is likely that this latest Bund sale is to none euro area investors.
Don’t worry Germany
Wall Street will soon figure a way to shaft you.
Oh sorry they already have.
They must be worried they would loose money else where… And likely expect inflation to rise. That’s they only reason to take a negative yield…
That’s right, they see Germany as a safe place to store wealth, even if they have to pay a small fee.
I better learn German then.
Right. That’s it. I’m now selling my own private bonds. I’d like to get something similar to the German interest rate. Anybody want to start the bidding?? Please???
I will give you some paper with some numbers written on it and a promisery note to pay the bearer some gold oh wait that means I would be a bank of ye olden times when banks where banks and sovereign countries could issue bonds without inference from outside markets/bodies. Oh the good old days before deregulation of the banking and economic system. Those were the days!
Judging by the feedback for my previous comment I see how many idiots got a tracker mortgage. If those idiots only knew that yes, you can get a fixed rate 30 year mortgage in the U.S. Damn, tracker must be painful. What a bunch of retards. Supply and demand, i.e. ifo there were no idiots, there would be no tracker mortgages.
You do not seem to be functioning normally Dave. You may not have noticed that it does not matter one iota what you can get in America. This is not America. Besides why would you get a 30yr fixed Mortgage when a Mongolian Yurt tent can be purchased in Ulan Bator for 2 cows. As the doctor said to your mother “bit of a retard”.
have your say