During the time of Eurozone on Wednesday, Germany’s central bank for the first time issued a 10-year bond with negative yields, which the paper was auctioned at the average of -0.05 percent, the lowest ever. This new 10-year bond made Germany become the second G7 nation after Japan to issue 10-year bonds with a negative yield.
This new bond has a negative interest rate and a 0% coupon, which means investors will not receive any interest payments and would get back less than they paid when holding it to maturity, while investors can make profits on these bonds if their price rises in secondary markets.
“This auction is a symptom of what we’re seeing globally,” said Orlando Green, European fixed income strategist at Credit Agricole. “We are in a positive market environment for bonds right now and investors remain relatively long German Bunds.”
Germany’s 10-year bond is considered as the benchmark for Europe, and the negative yields is mainly affected by the current economic situation and global uncertainty influenced by Britain’s vote to leave the European Union. This shows that investors are still willing to put their money into safe German paper against the backdrop of global uncertainty, unprecedented monetary stimulus from the European Central Bank and a tepid inflation outlook. It has sold more than 4.0 billion euros ($4.5 billion) since the German bond issued, said by the Bundesbank.
Overall, there is now $13 trillion of global negative-yielding debt, according to Bank of America Merrill Lynch. That compares with $11 trillion before the Brexit vote, and barely none with a negative yield in mid-2014.