Switzerland: first to sell negative yield 10-year bonds

‘This is a reflection of what central banks are doing’ – senior rates strategist.

In a world where paying for the privilege of lending to creditworthy nations has lost its stigma, Switzerland is breaking the most ground.

The nation on Wednesday became the first to sell 10-year bonds via auction at a negative yield, meaning investors who acquired the securities effectively paid the Swiss government to hold their money for a decade. It’s the longest-maturity debt that has been sold directly to investors at yields that are less than zero as the country fights the risk of deflation.

With Germany’s yields negative up to seven years, Switzerland’s auction is just the latest example of the impact of unprecedented central bank monetary easing that has suppressed borrowing costs across the world. Mexico, a developing economy that 20 years ago sought a $50 billion bailout to avoid a default, is said to be selling the world’s first 100-year government debt in euros, while yields on local currency two-year notes in the Czech Republic fell below zero for the first time last month.

“This is a reflection of what central banks are doing, we are seeing this race to the bottom in terms of easing,” said Michael Leister, a senior rates strategist at Commerzbank AG in Frankfurt. “It looks like this negative-yield environment is going to extend.”

Consumer prices

The persistence of negative yields shows investors are speculating that central banks may struggle to kick-start their economies and avoid deflation. If consumer prices are falling, real yields, or yields after inflation is taken into account, can still be positive, even on securities that have a negative yield.

On the same day that a government report showed consumer prices slid 0.9 percent annually in March, the most since June 2012, Switzerland sold 1.5 percent bonds maturing in 2025 at an average yield of minus 0.055 percent, the first negative yield at an auction of the securities since Bloomberg started monitoring the offerings since February 2000.

The Swiss National Bank, which gave up its cap of 1.20 francs per euro as the ECB prepared to introduce sovereign-bond purchases, has a deposit rate of minus 0.75 percent. The country auctioned three-year debt at minus 0.21 percent in September 2012 amid the euro-area’s sovereign debt crisis.

Germany sold two-year notes on Wednesday at a record-low yield of minus 0.28 percent, meaning investors agreed to pay a fee that’s even higher than the 0.20 percent penalty the ECB charges for parking excess cash with it overnight. German four- year yields dropped below the deposit rate level for the first time on Wednesday, reaching minus 0.201 percent.

©2015 Bloomberg News
 

COMMENTS   0

You must be signed in and an Insider Gold subscriber to comment.

SUBSCRIBE NOW SIGN IN

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.
INSIDER SUBSCRIPTION APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING

Follow us:

Search Articles:
Click a Company: