Wow - Germany to auction a zero-percent 30-year bond for the first time

Discussion in 'Markets & Economies' started by openeyes, Aug 20, 2019.

  1. openeyes

    openeyes Well-Known Member Silver Stacker

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    GoldenEye and ozcopper like this.
  2. ozcopper

    ozcopper Administrator Staff Member

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    The financial world has gone insane!!!
     
  3. Krakked789

    Krakked789 Member

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    The walls are closing in. Brace yourselves for the war on cash, the corraling into their digital ponzi currencies (fiat and crypto) and the application of negative interest rates and bail-ins - i.e. theft.
     
  4. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    The article talks about a "zero coupon bond" to be issued. Back in the day the same type of debt instrument that was created in the 80's and used by corporates, and whilst it paid zero interest, the bond was usually sold at a deep discount to face value ie buyer pays say $94.50 now for a 5 year $100.00 bond payable at maturity to take into account estimated interest over the life of the bond.

    How life has changed. Investors don't give a rats about "return on capital", but rather "return of capital" and thus see the German mattress as the place to stash their cash under.
     
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  5. leo25

    leo25 Well-Known Member Silver Stacker

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    As long as central banks keep reducing interest rates and bidding up the bond price there is normally a small spread to be made. Though the market (incentive) is no longer needed to sell bonds, as central banks are really the only buyer atm. One big shell game.
     
  6. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    I do not understand why anyone will buy German bonds at zero percent coupon when they can buy US treasury or Singapore government bonds at 2% per annum yield? Not to mention that both currencies have appreciated against the euro in the last 10 years.

    If they are afraid of sovereign risk, then buy gold, gold can't go bankrupt.

    There must be some strange reason that people are not talking about?
     
  7. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    https://www.bloomberg.com/news/arti...c-demand-for-30-year-bond-sale-at-zero-coupon

    World's First 30-Year Bond With Zero Coupon Flops in Germany
    By
    John Ainger
    August 21, 2019, 7:48 PM GMT+10 Updated on August 21, 2019, 11:46 PM GMT+10
    • Nation sells 824 million euros versus 2 billion euro target

    • ‘It is technically a failed auction,” says Danske’s Sorensen
    The world’s first 30-year bond offering a zero coupon struggled to find buyers, signaling that negative yields across Europe may finally be taking their toll on investor demand.

    Germany failed to meet its 2-billion-euro target ($2.2 billion) for the auction of notes maturing in 2050, selling only 824 million euros. It’s another sign that the global bond rally may be coming to a halt now that more than $16 trillion of securities around the world have negative yields.

    [​IMG]
    “The broader conclusion is that this is an ominous sign for cash bonds,” said Antoine Bouvet, a rates strategist at ING Groep NV, looking ahead to the end of a summer lull in European issuance next month. The jury is still out on whether this is “a turning point in the long-end rates rally, as the fundamental driver of lack of faith in central banks’ ability to reflate the economy is still there.”

    Dwindling expectations for inflation and growth in coming years has led the European Central Bank to hint at a new wave of monetary stimulus next month, driving a rally across the region’s bond markets. The whole of Germany’s yield curve is now below zero -- the first major market exhibiting such a trait -- meaning the government is effectively being paid to borrow out to 30 years.


    The sale comes as Germany is priming the pumps for extra spending should an economic crisis hit. While the nation is confined to strict laws on running a fiscal deficit, Finance Minister Olaf Scholz suggested Germany could muster 50 billion euros ($55 billion) should a recession hit. The economy contracted in the second quarter.

    The auction was at a record-low average yield of -0.11%, while the Bundesbank retained nearly two-thirds of the debt on offer. The real subscription rate -- a gauge of demand that accounts for retentions by the Bundesbank -- fell to 0.43 times against 0.86 times at the previous sale of similar maturity bonds on July 17.


    “This shows that there is less demand for 30-year bonds at negative yields,” said Marco Meijer, a senior fixed-income strategist at BNP Paribas SA. Still, Meijer doesn’t “see yields rising a lot in Europe.”

    German 30-year yields rose three basis points to -0.12% as of 2:30 p.m. in London. Those on 10-year securities climbed two basis points to -0.67%.

    Tantrum Risk
    One of the triggers for a German bond selloff in 2015, after benchmark yields first neared 0%, was a poor 10-year auction that highlighted a loss of demand at low yield levels.

    This time around, Commerzbank AG had expected demand to come from life insurers and macro investors, despite the yield curve flattening in recent weeks to drive down long-dated yields. German 30-year bonds are still attractive for U.S. investors, when hedged for currency swings, offering around a 2.6% yield, relative to around 2% on a 30-year Treasury.

    “It is technically a failed auction,” said Jens Peter Sorensen, chief analyst at Danske Bank AS. “I am not all worried about this -- as investors can always just buy in the future and do not need to participate in auctions.”

    — With assistance by James Hirai, and Charlotte Ryan
     
  8. leo25

    leo25 Well-Known Member Silver Stacker

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    The only buyers are companies that are forced to buy local government bonds like super funds and central banks.
     
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  9. Silverling

    Silverling Well-Known Member Silver Stacker

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  10. leo25

    leo25 Well-Known Member Silver Stacker

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  11. dozerz

    dozerz Well-Known Member Silver Stacker

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    they will just buy their own bonds, like japan has. makes it much easier to write off when you owe yourself. what could possibly go wrong?
     
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  12. bubblebobble2

    bubblebobble2 Well-Known Member Silver Stacker

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    US/Trump should be on this one....since he got rejected by Denmark on Greenland
     

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