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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.
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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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I would say that this is the new ‘normal’ and things will likely stay like this for some time.
Good news if so in that it isn’t getting any worse but bad news in that it isn’t getting any better.
With any luck, when we look back in 20 years we will see the last year or two as the low point.
Funny the pr spin from government and the business lobby over Xmas was shops had an increase in sales and footfall. Somebody is lying here or they can’t calculate the information properly hence explains how we got into this mess.
Fairly obvious ! No one buying houses = no furniture sales ? Even changing the unlucky 13 to 131 can’t make up for general lack of money and unemployment ….etc
It would b interesting to see how these figures compaer with 07,08 ,09- allowing for inlaltion – and when calculating inflation one assumes food and energy are included .
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