Germany’s benchmark for how much it costs the government to borrow money is plunging lower and lower — and on this trend, it’s just a matter of time before investors are actually paying to hold the government’s debt.
The 10 year bund yield, which is the most commonly used indicator of how much or how little a government is paying on its debt, is now yielding less than 0.1%. To put that in perspective, the yield was above 3% until summer 2011.
Government debt doesn’t usually offer big returns for investors unless it’s a risky government — but it does usually offer something. It’s also safe — investors like bonds because they almost never lose money. But now we’re in a bizarre climate where investors will effectively pay — and lose money — to hold onto government debt, at least for some countries, because it feels safer than the alternatives.
Here’s the yield tipping below 0.1% on Thursday morning:
Bunds are generally regarded as some of the safest government debt securities in the world, and any sign of a crisis tends to drive investors into the market for German debt.
This is how the 10-year yield looks over the longer term:
If it does plunge below zero, it will be the first very large advanced economy to do so. Switzerland’s 10-year bonds are yielding in negative territory, but the economy is about a fifth of Germany’s size. Germany’s government is currently committed to a balanced budget, so it’s not exactly making the most of the opportunity.
Even Japan, which used to be a bizarre case study because of its very low bond yields, has never issued 10-year bonds that investors have actually paid to hold.