Via Bloomberg
Yesterday marked the sale of a 30 year German bond at a negative yield. Yes, that's right. You can now pay for the privilege of lending money to Germany for 30 years. The 30-year note being offered at yesterday's EU2b sale was priced in the gray market at -0.15%.
Who wants negative yielding bonds?
So, who would buy negative yielding bonds? See here for an explanation I gave back here in April. So, A USD investor willing to fund into in EUR can achieve around a 2.60% yield, which is still a 0.60% premium above 30 year US treasuries. Of course there is extra duration risk, which is a high price to pay given current market conditions in particular.
This marks a key moment in the bond price rally and you have to wonder how much lower yields can go from here. They can keep going as long as folks keep buying and if the ECB pump up QE again the there will be lost of German debt being bought, including the 30 year bond.According to Blooberg's Dirk Gojny up to 1/3 of any bund issuance will eventually make it into the Bundesbank bund portfolio due to existing QE reinvestments. The race for bonds is on.
Still room for Equities to recover
If interest rates are going to keep falling across the world then companies can borrow money cheaply, which should keep the equity rally running. If some risk could be removed the market, get Brexit behind us, let Italy settle down, the US-China deal finally gets done (probably next year now, as it is a helpful battle for Trump going into elections), then equities would be in a great place to rally again. Interesting times...
In the meantime, anyone want any 30 year German bonds, ;-)?
