Germany issues negative interest bonds
July 13, 2016
Germany's central bank on Wednesday issued for the first time a 10-year-bond at a negative interest rate, attracting investors who hope to avoid risks at a time of economic and political uncertainty.
The Bundesbank said it had sold more than 4.0 billion euros ($4.5 billion) worth of bonds at a yield of minus 0.05 percent.
That means that buyers, who would traditionally expect a return on their investment, are effectively paying to own the notoriously solid securities.
Amid Brexit concerns and volatile stock markets worlwide, investors are increasingly shifting their money to safe havens, even if it comes at a price.
Germany enjoys a top-notch triple-A credit rating and has a reputation for paying back its debt timely.
Quantitative easing effects
Interest rates on sovereign debt have been falling for some time, as the European Central Bank (ECB) pursues a massive quantitative easing program, in which it buys eurozone countries' bonds in an attempt to push up inflation and boost the eurozone economy.
This means investors can easily sell on their German bonds in the current climate.
"As long as the ECB is pumping several billions into the market every month, there will always be a taker," Elmar Völker, an analyst at LBBW, told news agency Reuters.
He expects the interest rate to stay negative over the next six to 12 months.
mrk/jtm (AFP, Reuters)