German Central Bank Issues Zero-Rate Bonds

[tluassa]

http://www.spiegel.de/international/...-a-834679.html

For the first time in history, Germany issued long term bonds with a zero percent coupon rate on Wednesday. The demand reveals the deep concerns investors have about the euro zone and their desire for a safe place to park their capital -- even if it costs them money to do so.

[usedtobe_2T046B5]

Great. Most of the last interest rates on the government bonds were already below the inflation rate. But I'm surprised it dropped to zero percent.

[Mu-Meson]

Could someone explain to be the benefit of getting a zero rate bond over just stuffing cash into a mattress?

[Silent Reader]

Well you would need a mattress that can hold 5bln €, and a place to store it away safely.

[wotsnext]

.5% in the UK and we are being pushed to reduce that.

[Waletski]

Break the line and go minus interest-rates, should provide a useful tool to boost the economy the Wörgl way

[911Emergency]

Next thing you know, they'll be charging you to park your money with their bonds.

[tea drinker]

Could someone explain to be the benefit of getting a zero rate bond over just stuffing cash into a mattress?

if I understand it, it helps to keep capital flows such as worried bank depositor in Faux Euro country getting on a plane to Germany, getting a train, walking a few minutes to bank and getting your Geman bonds. And if they still want to do that they are paying for the security, not earning anything - and people will still want it.

[Mr Gently Benevolent]

Great. Most of the last interest rates on the government bonds were already below the inflation rate. But I'm surprised it dropped to zero percent.

Zero coupon bonds are not uncommon you buy it at a discount of face value and it is redeemed at face value on maturity.

[Martel]

http://online.wsj.com/article/SB1000...googlenews_wsj

France Joins Germany to Sell T-Bills At Negative Yield

France joined a handful of euro-zone countries Monday in selling short-term debt at negative interest rates as investors seek alternatives to expensive German and Dutch debt.

Earlier in the day, Germany's six-month borrowing costs again turned negative at an auction, after the European Central Bank slashed its key policy and deposit rates to unprecedented levels last week.

The negative yield at Monday's German auction, the lowest on record in this maturity segment, means that investors effectively pay the German state for the privilege of holding its debt.

The Dutch State Treasury Agency had already sold Treasury Certificates, or short-term debt, at negative yields. Now the French government is doing so as well.

Germany sold 3.290 billion euros ($4.041 billion) of six-month Treasury bills, known as Bubills, at an average yield of -0.0344%. This is not only below the 0.0070% reached at the previous auction June 11 but also lower than the -0.0122% seen at an auction Jan. 9.

France sold EUR3.917 billion of 13-week Treasury bills at an average yield of -0.005%, down from 0.048% a week ago, and it sold EUR1.993 billion of 24-week Treasury bills at an average yield of -0.006%, down from 0.096% last week. Yields on France's 50-week Treasury bills also came very close to zero, being allocated at an average yield of 0.013%, down from 0.163% a week ago.

The German Finance Agency's EUR4 billion offer attracted EUR5.480 billion in bids. The solid demand signals that many investors are still willing to forego returns in exchange for safety.

While German yields have turned negative several times in the secondary market, this is the second time so far this year that borrowing costs were negative at a German debt auction.

The ECB cut its key policy rate to a new low of 0.75% from 1% Thursday, and reduced its deposit rate to zero at its rate-setting meeting last Thursday, largely in line with market expectations.

Several large money-market funds restricted or closed their European funds to new investments after the ECB cut the deposit rate to zero, as they have struggled to provide returns to investors.

"This emphasizes the unforeseen effects of the extreme monetary policy actions that are currently being carried out by the ECB," said Rabobank's fixed-income strategists.