German ten-year bond yield inch even closer to zero
German ten-year bond yields turn negative: ten questions answered
- What's the relation between bond yields and price: – and interest rates.
- How does this relate to the lower zero-bound? (Why did economists think this was impossible)
- Why are investors buying into this seemingly dud deal?
- And who exactly benefits from this extraordinary situation?
- Why is the German ten-year bond yield so significant:
- Which other countries have negative bond yields?
- Are countries selling bonds with negative yields?
- How is this affecting comapnies? – Insurance firms and pension funds have had to take on more risk. hard hit. imf.
- What does this mean?
- Why all the fuss?
- What are investors getting?
- What are government getting?
- How is this affecting companies?
- Is this related to quantitative easing?
- ANd what are other possible measures?
- Which countries have negative yields?
- Have any countries sold negative yields?
- How long will this last for?
Deflation makes investors more likely to take on negative yields bcos they think global prices will rise less slowly in the future.
This means investors are effectively paying for the privilege of holding the German government's debt.
They're on the verge of joining the exclusive negative club – of which just traditional safe-haven Switzerland is a member. Last week it become the first government ever to sell benchmark 10-year debt at negative interest rate.
So why are investors prepared to accept this seemingly dud deal?
So why all the fuss about the German ten-year yield? As the euro area's benchmark it's of huge symbolic importance to the European Central Bank. "It shows a shortage in the highest-quality Eurozone government debt partly due to the central bank's unprecedented quantitative easing programme.
Yields move inversloy to price
German government debt low risk anyway, helped by ECB.
More worrinying theory.
"A third of euro zone government debt now carries negative yields, and the process has accelerated since the European Central Bank last month launched a scheme to buy 1 trillion euros of bonds to spark growth and inflation."
"Euro zone benchmark German debt trades in the secondary market with negative yields on maturities of up to seven years. Berlin has also sold two- and five-year bonds at auction with negative yields. But never 10-year bonds."
In other words European governments are being offered free money.