Germany to sell 30-year bonds with zero interest for first time
The German government will tomorrow offer investors the chance to hand over their money to the finance ministry for 30 years – and receive no interest for the privilege.
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In a sign of ballooning global demand for ultra-safe assets, Germany will auction 30-year bonds with a zero per cent coupon, or rate of interest.
The zero per cent payout means investors will make no money if they hold the bond until it matures in 2050, by which time the value of the money they receive back will have been eroded by inflation.
The German government will try to sell €2bn (£1.8bn) of the ultra-long bonds tomorrow at 10.30am UK time. The number of bids will give a sense of the demand for safe-haven assets.
Investors have piled into super-safe government bonds as the global economy has slowed and central banks have cut interest rates to record levels and pumped money into bond markets.
All German government bonds, known as Bunds, offer a negative rate of return if bought in the markets. The yield on 30-year Bunds is minus 0.19 per cent. Yields move inversely to prices.
One driver of demand for European bonds has been signals from the European Central Bank that it could cut interest rates and restart its giant bond-buying programme, known as quantitative easing (QE), which would spur demand and see bond prices rise.
“It does seem mad in a sense,” said David Owen, chief European economist at Jefferies. Yet certain investors may have to hold a certain amount of government bonds in their portfolios, he said.
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“In a way they don’t want to do it but they have to. And you’ve got other people who think: Well, it’s a punt, I’ll do it for the short term because I think the ECB’s going to come through and cut rates and do more QE and I think I’ll be able to get out at a higher price.”