Flight to government securities – “In the financial world is something wrong” – Süddeutsche.de

For the first time in German history bringing ten-year Bunds negative returns. Who borrows Germany money, puts it at the end.

From Harald Freiberger and Markus Zydra , Frankfurt

Germany is an export giant, but has made the center of the national financial sector it really just a product made on the world markets. We are talking about the ten-year government bond. Banks, insurance companies and many private investors have come to appreciate the security of the security and the often respectable interest since the early 1960s.

With the financial crisis, the picture has changed significantly from 2009. Interest income on the primary government bond declined more and more, because the European Central Bank (ECB) successively lowered the key interest rate to zero percent. Bunds with a shorter duration are a loss-makers have for over a year. Now it also has the top dog, the ten-year government bond caught. The result: Investors attach it

It was about 9:20 on Tuesday, as the yield on ten-year German government bonds on the international markets declined for the first time in German history at below the zero line.. This means that investors who bought the securities making, at the end of a loss. They lend the state, for example, one billion euros and available after expiry of the term only 999.66 million Euro back – the return was on Tuesday afternoon minus 0.034 percent. This is a boon for the federal budget, the deserved by borrowing money. It’s a curse to investors. “If investors get even ten years no return, shows that: In the financial world is something wrong,” says Robert Halver, capital markets strategist at Baader Bank. “We buy the preservation of the euro so that we allow sin in the world interest that were previously unthinkable.” The price will be high, warns the expert, for example in the pension. “Insurers will their promise of interest can no longer be followed.”

The strong demand for the German promissory notes has a reason. On the international financial rampant fear. On June 23, the British vote in a referendum on the withdrawal from the EU. If the Proposed referendum on United Kingdom membership of the European Union advocates get a majority, the future of the European Union is at stake. Even now, the money professionals prepare for the worst and precaution sell stocks. The Dax has lost in the past week around five percent of its value. Instead, the money will flow in safe securities. The ten-year government bonds from Switzerland, which also yield negative returns, and even the federal loans.

Investors take so deliberately losses in buying? Yes, forced. You put the money in loss-making government bonds in order perhaps even to prevent higher losses in the equity and currency markets. At the same time there are also regulatory requirements that banks and insurance companies practically force them to invest in fail-safe government bonds. Nobody now buy German bonds because he really wants. They buy because you have to. “It results from the economic logic ago no sense to establish a long-term bond with a negative yield to buy because you look so einhandelt long time guaranteed losses,” says Elmar peoples, bonds expert at Landesbank Baden Württemberg (LBBW). However, there is no alternative. “There is no safe investments more with return, and it can go further down. In Switzerland, the yield on ten-year bonds stands at minus 0.5 percent,” says nations.

The Federal Treasury saves every year billion euros in interest costs

the recent price developments on the bond markets contradict the free market logic. Money should have a price, and the borrower how the state should for a loan will have to pay an interest. But the central banks of developed countries have lowered the base rate by the financial crisis to zero percent. The ECB requires even a penalty rate for bank deposits. Moreover, the ECB buys each month government bonds worth about 70 billion euro, including many Bunds.

The ECB is therefore partly responsible for the negative returns. On the other hand saves the Federal Ministry of Finance characterized every year billions of euros in interest costs, which the public benefits. The low interest rates also lead to low-cost consumer and real estate loans.

The Bund yields have fallen steadily over the past 35 years. Beginning of the 1980s threw off the ten-year government bond over ten per cent, in 1990 it was 9.1 percent. In 2000, there were 5.5, ten years later, 3.4 percent. In September 2014, the return for the first time fell below one percent. One reason for the change: In the 1970s and 1980s, there was high inflation, which was fought with high interest rates

the interest earned on the main government bond declined because the European Central Bank interest rate successive absenkte to zero percent.

(Photo: Boris Roessler / dpa)

But after the fall of the wall in 1989 and the market opening of China took to globalization drive. As a result, decreased the global production costs. Inflation declined further and further, the work of the monetary authorities changed. “The monetary policy of the central bank has responded. Was less increase than before in phases the rate increase, lowered deeper into phases of reduction,” says Bond Expert peoples. The financial crisis has exacerbated this trend. “It is difficult to assess whether the below the zero line is a signal for a turn or the opposite: that it further goes down.”, So nations

But at some point should interest rates rise again. Then facing a very different threat. “Investors have huge price gains piled on their loans. If they see that it goes in the other direction, there is a crash risk,” says market expert Halver. The investors would sell bonds to secure their gains. “Such a powerful bond bubble has never burst.”

News Encyclopedia: government bonds

government bonds, after taxes and fees, the most important means by which governments can raise money. This is to IOUs, which are freely traded on exchanges. When the borrowings are asked their price and the interest rate rises decreases accordingly. The lower the coupon rate, the better the credit rating of any state. For ten-year German government bonds, interest is now for the first time in history under the brand of zero percent declined. After status of Tuesday, an investor has to pay three cents, if he wants to borrow the Federal Republic ten years 100 euros – actually an absurd development. It has mainly to do with the low interest rate policy of the European Central Bank, but also shows deem as very solid investors Germany. The country is considered a safe haven where you can park your money safely when stormy weather threatens. Historically the rise of democracy and the rule of law is closely associated with financing through government bonds. A government can borrow with a chance of success money from its citizens only if they build it, they also get their money back. The first government bonds were traded in the 12th century in the Republic of Venice. The free Netherlands developed the system in the 17th century on, until finally the British brought to perfection. Nikolaus Piper