Posted on Tuesday, January 10, 2012
Monday saw a German debt achieve negative yield of 0.012%.
In a record breaking auction, rather than receive interest income from lending money, investors were happy to PAY the German government for the privilege of converting their cash into securities despite the fact that at the margin, they are less liquid and subject to mark-to-market volatility.
This is not a new phenomenon. Recently, secondary market trades for short dated German securities have yielded less than 0% and elsewhere US debt was bought on similar terms at the height of the global financial crisis.
Yields are essentially being driven down by a greater demand for the perceived stability of German debt, with strong balance sheets and economic positioning at the expense of other Euro Government debt markets. The repositioning also spreads to the banking system with German Banks enjoying increased deposits at the expense of other European Banks.
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