[jolepp]

Investors are flocking to havens to store their cash, amid continuing worries about the eurozone debt crisis.

Germany sold 3.9bn euros (£3.2bn) of six-month bonds at an average yield of -0.0122%, the first auction with a negative yield.
...

BBC News - Germany sells six-month bonds at negative yields

edit: The Swiss have pulled a similar feat earlier, by a greater margin (-1% for 6 month bills):

...
The Swiss government sold bills worth 634.25 million Swiss francs at a price of 100.19. As the government will redeem the bills at 100, or par, in December, this means that the yield for investors is a negative 0.75%. Last week's six-months bill auction resulted in a yield of -1%, the first time ever that interest rates dropped below zero for Swiss government debt.
...

http://online.wsj.com/article/SB10001424053111904199404576540601403370190.html

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Last edited by jolepp; 01-09-2012 at 06:36 PM. Reason: +wsj quote

[kswier]

Well...I don't think I will be purchasing any of these bonds.

Pretty crazy though.

[jolepp]

CBC's corresponding piece: Germany sells bonds guaranteed to lose money - Business - CBC News

[reeftool]

Is anybody buying? Just curious.

[jolepp]

Is anybody buying? Just curious.

A 'civilian' (over here) would do better by keeping their money in the bank (or stuffing cash into the mattress ). Those with serious amounts of money (not covered by government guarantees akin to FDIC) apparently consider it better to pay a 0.01% rate for safe keeping than risk trusting banks (or obtaining and keeping a large amount of cash money themselves): apparently there would have been buyers for even a larger amount than the 4 bn € worth the Germans sold this time.

Incidently this would seem to indicate that the mistrust towards the Euro itself is not too bad (?). Also, the ECB recently offered three year loans at 1% rate and 'sold' 489 bn € worth of these, most of this apparenty came right back as deposits into ECB itself although they pay less interest (0.25%) (BBC News - ECB reports record cash deposits from banks). This would seem to mean that the banks do not trust each other.

[Parallax]

Is anybody buying? Just curious.

Apparently so. The CBS article said there were offers to by 7 billion worth, even though there were only 4 billion for sale.

[Nesster]

The problem is that when you're an institution with hundreds of millions - or billions - to stash somewhere, there isn't a big enough mattress to hold em. In other words, you'll normally be lending the money out in the money market, or purchasing assets of some sort... or letting the cash sit in some bank account somewhere.

What this is saying in part is that the counterparty risk - and asset risk - is greater than the assured negative yield with the govt securities.

[jolepp]

related:

BERLIN — Throughout the month, countries caught in the eye of the European financial storm, including Italy, Spain and France, have repeatedly defied expectations, selling big batches of bonds to the public at interest rates significantly lower than investors demanded at the height of the euro crisis late last year.

The surprisingly successful auctions owe little to improving economic data around the region. On the contrary, many of the countries that use the euro as their currency appear to be confronting a renewed recession, and pessimism about their growth prospects remains abundant. Just last week, Standard & Poor’s stripped France of its coveted AAA rating for the first time in recent history and downgraded eight others.

Instead, most of the credit seems to go to the European Central Bank, which in late December under its new president, Mario Draghi, quietly began providing emergency loans to European banks — hundreds of billions of dollars of almost interest-free capital that the banks have used to come to the rescue of their national governments.

The central bank, based in Frankfurt, used typically understated and technical language to describe its actions, but it appears to have done what its leadership said throughout 2011 that it would not do: namely, flood the financial markets with euros in a Hail Mary attempt to make sure that the region’s sovereign debt crisis does not lead to a major financial shock.

Though on a smaller scale and in a subtler manner, it has in many ways taken a page from the United States Federal Reserve’s playbook for the 2008 financial crisis, which has been roundly criticized in Europe as a reckless bailout that risks setting off uncontrolled inflation. And, at least for now, the effort has worked. Spain’s 10-year bonds carry interest rates that hover around 5.5 percent, compared with 7 percent and higher in November, and Italy’s five-year bonds are approaching 5 percent, down from nearly 8 percent at their peak.
...

http://www.nytimes.com/2012/01/21/world/european-central-bank-eases-euro-crisis-a-bit.html

[jolepp]

Who is to blame for starting the current crisis in the eurozone? Greece? Italy? The real answer may lie further north.

It was not the behaviour of the eurozone's southern members that first plunged the single currency into crisis.

There was, from the beginning, a way for the EU to police the economies of member states by following the rules that had been laid down for the single currency in the Maastricht Treaty.

It was called the Stability and Growth Pact, and it was not Italy or Greece that torpedoed it - it was Germany.
In 2003, France and Germany had both overspent, and their budget deficits had exceeded the 3% of GDP limit to which they were legally bound.

'Told to shut-up'

The Commission - then led by the former Italian Prime Minister Romano Prodi - had the power to fine them.

But the finance ministers of what was then the 15 eurozone member countries gathered in Brussels and voted the Commission down.

They voted to let France and Germany off.

They voted not to enforce the rules they had signed-up to and which were designed to protect the stability of the single currency.
...

BBC News - Did Germany sow the seeds of the eurozone debt crisis?