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09-01-2012, 11:21 PM
I find this very interesting. Why are these "investors" willing to pay above par value for the bonds?
From Channel News Asia website.
FRANKFURT - Germany paid a negative return to investors at a debt auction for the first time on Monday, highlighting the status of Europe's biggest economy as a safe haven in the current debt crisis.
The Bundesbank, which handles German federal debt auctions, sold 3.9 billion euros (US$5 billion) of six-month Treasury bills at an average yield -- the return earned by the investor -- of minus 0.0122 percent.
Negative yields effectively mean that investors are willing to pay the German government to take their money, rather than more normally earn a return.
Unlike most longer-dated bonds, treasury bills do not pay interest by way of a coupon but are usually issued at a discount price and then redeemed at par.
That means investors pay slightly below the par value and receive the full face value back six months later, pocketing the difference as interest.
But this time, investors paid more than they would receive when the bills mature -- the weighted average price was 100.00616 euros to receive 100 euros in six months' time.
There was strong demand for the issue, with investors submitting a total 7.08 billion euros in bids for the 4.0 billion euros in bonds on offer.
"It's the first time that a placement has seen a negative yield," said a spokesman for the federal finance agency.
At the last auction of treasury bills at the beginning of December, the yield was practically zero.
"People just want to make sure they get their money back. German debt is in high demand because buyers are also looking for high-quality collateral," said Lloyds Bank Corporate Markets analyst Eric Ward.
Investors have flocked to German debt throughout the sovereign debt crisis, sending borrowing costs in Germany to their lowest ever levels.
Elsewhere in the euro area, the Netherlands also paid a negative return to investors on three-month bills last month while US and British bond yields have also fallen sharply.
By contrast, other eurozone countries such as Italy and Spain are now facing their highest borrowing costs since the 1990s.
Germany is one of five eurozone countries, alongside the Netherlands and France to enjoy the highest possible debt rating of triple-A.
Germany plans to raise 250 billion euros via the bond markets this year, including 80 billion euros in short-term issues.
- AFP/ir
From Channel News Asia website.
FRANKFURT - Germany paid a negative return to investors at a debt auction for the first time on Monday, highlighting the status of Europe's biggest economy as a safe haven in the current debt crisis.
The Bundesbank, which handles German federal debt auctions, sold 3.9 billion euros (US$5 billion) of six-month Treasury bills at an average yield -- the return earned by the investor -- of minus 0.0122 percent.
Negative yields effectively mean that investors are willing to pay the German government to take their money, rather than more normally earn a return.
Unlike most longer-dated bonds, treasury bills do not pay interest by way of a coupon but are usually issued at a discount price and then redeemed at par.
That means investors pay slightly below the par value and receive the full face value back six months later, pocketing the difference as interest.
But this time, investors paid more than they would receive when the bills mature -- the weighted average price was 100.00616 euros to receive 100 euros in six months' time.
There was strong demand for the issue, with investors submitting a total 7.08 billion euros in bids for the 4.0 billion euros in bonds on offer.
"It's the first time that a placement has seen a negative yield," said a spokesman for the federal finance agency.
At the last auction of treasury bills at the beginning of December, the yield was practically zero.
"People just want to make sure they get their money back. German debt is in high demand because buyers are also looking for high-quality collateral," said Lloyds Bank Corporate Markets analyst Eric Ward.
Investors have flocked to German debt throughout the sovereign debt crisis, sending borrowing costs in Germany to their lowest ever levels.
Elsewhere in the euro area, the Netherlands also paid a negative return to investors on three-month bills last month while US and British bond yields have also fallen sharply.
By contrast, other eurozone countries such as Italy and Spain are now facing their highest borrowing costs since the 1990s.
Germany is one of five eurozone countries, alongside the Netherlands and France to enjoy the highest possible debt rating of triple-A.
Germany plans to raise 250 billion euros via the bond markets this year, including 80 billion euros in short-term issues.
- AFP/ir
