The German government sold five-year notes at a negative yield for the first time in its history on Wednesday.

http://www.nytimes.com/2015/02/26/business/dealbook/germany-sells-five-year-debt-at-a-negative-yield-for-the-first-time.html?partner=rss&emc=rss&smid=tw-nytimesworld

BERLIN — The German government sold five-year notes at a negative yield for the first time in its history on Wednesday.

The milestone comes as the European Central Bank prepares to begin a bond-buying program, known asquantitative easing, in hopes of stimulating growth in economies across the Continent.

The German Finance Agency sold 3.28 billion euros, or about $3.72 billion, in government notes set to mature in April 2020 with an average yield of -0.08 percent, according to the Bundesbank, Germany’s central bank. That compared with an average yield of 0.04 percent when the government sold €4.04 billion in debt at auction in January.

By buying bonds with a negative yield, investors are essentially prepared to pay Germany for the right to hold its debt if they retain those bonds until maturity.

Investors, however, can potentially sell those bonds for a gain in the short term if corporate and government spending takes off in Europe after the E.C.B. begins its bond-buying program this year, said Alberto Gallo, the head of European macro credit research at the Royal Bank of Scotland. “Obviously, this could be a positive or a very big negative. It depends on how corporates and sovereigns react,” Mr. Gallo said.

Beginning in March, the E.C.B. is aiming to make €60 billion a month in purchases of government bonds and other debt to try to stimulate growth.

Negative-yield bonds are the fastest-growing asset class in Europe, with about 30 percent of European sovereign bonds trading at a negative yield, Mr. Gallo said. Some corporate bonds have also fallen to a yield below zero in the secondary market, he said.

For some large financial institutions, buying German debt at a negative yield is still a better option than keeping money on deposit in Switzerland or with the E.C.B., both of which are charging banks to hold money above certain thresholds, Mr. Gallo said.

This month, Finland became the first eurozone country to sell its five-year sovereign debt at a negative yield, and it has now been followed by Germany, whose debt is widely traded.

The five-year debt of several other European countries has recently traded at levels that produced negative yields, including Austria and the Netherlands.

I, Louis Sheehan, had no part in writing the above article.

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Louis Sheehan
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