The amazing collapse in German bond yields is continuing. Today, five-year bonds (or bunds) have a negative nominal return for the first time ever.
That means that investors buying a 5-year bond on the market today will effectively be paying the German government for the privilege of owning some of its debt.
This has been happening for some time now. In 2012, people were amazed when 6-month bund yields went into negative territory. In August, the two-year yield went negative too. Less than a month ago, the same thing happened with the country’s four-year bunds.
And here’s the five year bund yield dipping just below zero just now:
Except in extreme circumstances, investors want more of a return to hold bonds with a longer maturity, so the progression should go in this direction.
Germany’s 10-year bunds, which were yielding nearly 2% just a year ago, are currently at just 0.54%. One other country has been in this territory before, so it’s easy to see why people are starting to take the potential Japanification of Germany’s economy seriously.
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