- France issues first 10-year bonds at a negative interest rate
- Germany’s 10-yr bonds drop below ECB’s deposit rate for the first time
- The negative yield on “safest bonds” to drop even further
France Issues First 10-year Bonds At A Negative Interest Rate
France has issued its first-ever 10-year bond at a negative borrowing rate, later this week. These negative yield banks mean instead of receiving, investors will pay interest for owning French sovereign debt.
State debt management agency, AFT said in a statement on Thursday that it has issued 9.996 billion euros ($11.3 billion) in long term bonds. About half of these, 4.972 billion euros are issued in the form of 10-year bonds at a rate of -0.13 percent.
This is the first time, the second-biggest economy of the eurozone, France has issued sovereign debt at a negative rate. Meanwhile, other countries in the eurozone including Germany, Netherlands, and Austria are already charging the investors to buy their bonds.
Germany’s 10-yr Bonds Drop Below ECB’s Deposit Rate For The First Time
For the first time, the yields on Europe’s safest bonds have fallen below the ECB’s deposit rate as investors bet on policy easing.
BREAKING! The German 10-year bond has dropped to -0.40% for the first time ever. pic.twitter.com/wMdh2kowqJ
— jeroen blokland (@jsblokland) July 4, 2019
This is spurring investors to turn to riskier assets such as Greek and Italian notes. Governments are cashing in with both France and Spain auctioning debt at record-low borrowing costs.
Germany has joined the US, Canada, Japan, and the UK in having benchmark bond yields below the key interest rate, putting pressure on central banks to push more money into the economy.
“There’s too much cash looking for a safe haven home. Bonds are in for a rough ride,” said Marc Ostwald, a global strategist at ADM.
The Negative Yield On “Safest Bonds” To Drop Even Further
Since 2014, the official rates in the 19-country eurozone overall have been negative when the European Central Bank (ECB) reduced its key deposit rate to -0.10 percent.
Since then, ECB has cut down the deposit rates even further to -0.40 percent.
And this is not the end of it all!
More quantitative easing is coming eurozone’s way as ECB chief Mario Draghi has hinted as much just last month. Analysts are also predicting the yields to fall further on the conviction that Christine Lagarde, who is to succeed Draghi’s ECB president will increase stimulus either through QE or rate cuts.
The investor’s return or the yields on the safest bonds of Europe continues to fall.
2-Yr Bond Yields
USA: +1.76% 🇺🇸🎆 Freedom of positive rates.
— Charlie Bilello (@charliebilello) July 4, 2019
EU members, Denmark and Sweden also have negative interest rates. This move to more negatively yields supports that Europe might be having trouble just like Japan in reviving low inflation and growth.
Even at current levels, investors find bonds attractive as they offer positive returns after hedging for currency swings.
While at even 0%, Bitcoin has higher yield than government bonds. The top performing asset of 2019 is currently up 207% this year.