Here’s something you don’t hear everyday. German bond yields are now negative. Meaning investors by holding these bonds are guaranteed to loose money. To put it another way investors are paying Germany to hold their money.
Why is this happening?
“It’s the economy, stupid” - Fears are mounting about the economic health of the European Union of which Germany is the biggest economy. When worries about an economy are prevalent, investors often pile into to bonds of safe-haven country. The German bunds (name for their bonds) are considered as a safe-haven. As more investors buy bonds, it increases the prices and pushes down the yields.
So, you may ask why wouldn’t the investors sell these German Bunds instead of buying? Well, it’s all about the risk. They may fear losing out elsewhere and are okay with losing out a little by holding German Bonds, because they are issued by a country that won’t go default anytime soon. There are also other complicated strategies involved.
And in case you are wondering is Germany the only country whose bonds are offering negative yields, the answer NO. Today, yields of nearly $10 Trillion worth of bonds are negative.
Source: Bloomberg
In India on the other hand, investors still refuse to invest when they can earn 7.5% on a 10 year government bond.
