Investors not impressed by Germany's bonds sale at 0% interest
The German government failed to shift even half of a planned €2bn bond deal yesterday as investors baulked at the zero interest being offered to lend to the country for 30 years.
The failed deal saw Germany's debt office find takers for just €824m of bonds, in a rare sign of investors pushing back against the collapse in investment returns available on the bond market.
The German government had no urgent need of the cash and can still borrow for effectively free for shorter terms.
Yet resistance to the deal is seen as a signal that the global bond rally that has driven debt costs to all-time lows for governments, including Ireland's, may have reached its limits.
The cost to Germany of borrowing sets the bar for debt costs across the euro area, including for Ireland. Pat Byrne, head of money markets at Bank of Ireland, said the German deal was the first ever 30-year bond with a negative yield (-0.11%), meaning in effect it costs investors to hold the bonds.
"The broader conclusion is that this is an ominous sign for cash bonds (bond prices)," according to Antoine Bouvet, a rates strategist at ING.
More than $16trn of debt around the world has a negative yield, a unique situation. Yields turn negative when demand for bonds pushes prices so high that the cost of owning the asset cancels out the interest. Bondholders have been willing to take that hit on shorter-term bonds - betting that the value of the asset will hold up better than cash or other safe assets in a low inflation environment. But the duration of the German bond pushed that logic too far for many.