mardi 14 avril 2015
Banks are deliberately paying to lose money on huge chunks of European government debt
Posted on 12:08 by nice news
Investors are paying to hold large chunks of European government debt — something that would have sounded absolutely absurd in 2011 or 2012. Roughly half of certain bond classes in the euro area now offer negative rates, according to Goldman Sachs.
Normally, when you buy bonds from governments, the government pays you interest in return for your cash. But because the European Central Bank is trying to flush cash out of the banking system and into the economy, they are using negative interest rates to deter investors from parking cash in "safe assets" like government debt. Banks are guaranteed to lose money if they take on bonds with negative yields.
And yet they're doing it anyway.
Goldman Sachs analysts just sent round a chart below showing how dominant negative yields on European government debt have become. It's a bizarre situation: Usually investors demand that premium for holding government debt, just in case the state defaults. And a couple of years ago, with a eurozone breakup looking quite possible, investors wanted big premiums for holding the debt of many of the shakier countries.
The situation now has completely transformed:
Read more: http://ift.tt/1cthjUJ
Normally, when you buy bonds from governments, the government pays you interest in return for your cash. But because the European Central Bank is trying to flush cash out of the banking system and into the economy, they are using negative interest rates to deter investors from parking cash in "safe assets" like government debt. Banks are guaranteed to lose money if they take on bonds with negative yields.
And yet they're doing it anyway.
Goldman Sachs analysts just sent round a chart below showing how dominant negative yields on European government debt have become. It's a bizarre situation: Usually investors demand that premium for holding government debt, just in case the state defaults. And a couple of years ago, with a eurozone breakup looking quite possible, investors wanted big premiums for holding the debt of many of the shakier countries.
The situation now has completely transformed:
Read more: http://ift.tt/1cthjUJ
Banks are deliberately paying to lose money on huge chunks of European government debt
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