That government bonds in Europe have negative yields is no longer a quirk of market pricing.
On Wednesday, Switzerland sold 377.9 million Swiss francs worth of bonds maturing in 2025 and 2049, respectively, and the yield on the 10-year paper came in at -0.055%, according to the Wall Street Journal.
This means that investors will pay the Swiss government 5.5 basis points every six months for the next 10 years for the right to lend money to the Swiss government.
Over the last several months, yields in Germany and Switzerland of shorter maturities have fallen into negative territory, but the latest issue from Switzerland is the first time a bond with this much duration has been issued at a negative rate.
Moreover, a number of bonds have fallen into negative territory, but this is partly because of market pricing. This means that the effective yield on these bonds was negative, because to buy them an investor would have to pay more than 100 cents on the dollar to acquire them.
The actual coupon payment on some of these bonds, however, was still positive. But now we have a new low as the nominal yield on 10-year bonds issued in Switzerland goes negative: you actually owe the Swiss government money if you own this paper.
Of course, this is still a decent deal: the Swiss National Bank’s overnight deposit rate is -0.75%. So by borrowing from the government at -0.055%, you’re still like, losing a bit less money than you would by parking that money in a bank.
Either way, as Jeff Gundlach has said, it is a sad state of affairs.
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