Ten-year government bond: Interest is gone – Handelsblatt

Stock market reports Ten-year government bonds: yield slipped first into the red

Frankfurt “Honey, I shrunk the Kids”, is a well-known film comedy from 1989. “investors, I have interest shrunk “, could say 27 years later ECB chief Mario Draghi. Both interest rates and capital market rates – so the bond yields – across Europe can the President of the European Central Bank (ECB) this fall for a long time.

But now there is a new highlight: The yield on the German bund with term of ten years is 10 for the first time like this Tuesday shortly before half in its history under zero percent

Federal papers

for the first time, the yield on ten-year treasuries is on Tuesday negatively.

the ten-year government bond has always been renowned as the ultimate benchmark for the long-term interest rates in euro area. Bund futures – – In addition, the most important European bond futures contract refers to the ten-year government bond. Therefore, the record low of the ten-year Bund yield a stir among investors makes – although already longer bunds with a maturity of up to nine years even pay negative. The margin ranges from minus 0.4 percent for two-year to minus 0.1 percent for nine-year papers.

The key facts on ten-year government bond

• banks need to have a buffer for bad times securities in its portfolio, which can make them if necessary quickly to money. Here Bunds come into play. You bring the sheer size of the German economy weight, says Folker Hellmeyer, chief analyst at Bremer Landesbank. “In addition, the German government and the Bundesbank have always pursued a policy of stability.”

  the papers are also for analysts Michael Schulz by NordLB an almost risk-free investment. “The German government is beyond doubt. This is fundamentally justified by robust economic growth, low unemployment and relatively healthy public finances. “Therefore, all the major rating agencies assess the creditworthiness of Germany the top AAA.

  bonds with a maturity of ten years, approximately become the world’s most important financial instrument of institutional investors. One reason for this is that the average maturity of all securities issued and lie at about eight years, says chief economist Hellmeyer.

• Europe lurches for years from crisis to crisis. From the financial crisis to sovereign debt and Greece- up to the refugee crisis. Acute at present is the danger of a European farewell to the UK, should endorse the referendum on June 23, a majority of Britons it. If it comes to the future of the European Union is at stake. Experts fear a global stock market earthquake. Even a recession in the UK and in major trading partners predict some economists. Investors must take into account such risks. “In times of heightened uncertainty engage investors to the papers with the lowest probability of failure,” says Schulz. “And these are after all the bunds.”

• The huge market: on an average trading day Switch Federal securities amounting to around 20 billion euros to the owner. The currently outstanding ten-year Bunds have a value of almost 500 billion euros. On the secondary market – about European stock exchanges, electronic trading platforms and over the counter – but a volume of about EUR 2.5 trillion is traded each year, or about five times. Only the market for US government bonds is still liquid. This means that owners their papers practically can make larger holdings into cash at any time.

• The ten-year Federal bond is by far the most important instrument for the financing of the debt mountain of the covenant. This was the end of the first quarter a height of 1.08 trillion euros. Nearly half of the debt consists of ten-year Bunds. In addition, the federal government embarks also bonds with maturities of between a few months and 30 years. Overall, there are almost 98 per cent of the debt of the Federal Government and its subsidiary budgets from marketable securities. Although the federal government has been increasing since 2014 no new debt more on ( “black zero”). However, they must each year about 20 percent of debts refinance because old bonds expire and must be replaced by new ones.
  

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  A very large. She presses with its monetary policy consciously interest rates to stimulate the economy and prices. She buys since March 2015 government securities with a volume of now 80 billion euros a month. Now she collects also on bonds of large corporations on the capital market. “It appears so in almost all bond markets as larger buyers,” says Schulz. “This high demand leads contrario necessarily at low interest rates.”

• The main customers are insurers and pension funds , They are required by law to invest a portion of their funds in government bonds.

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  clearly: Federal Finance Minister Wolfgang Schäuble (CDU). Although interest rates have paid on the stock exchanges no direct, very well but have an indirect effect on the cost of the federal government as issuer of bonds. To strike a new ten-year government bond market, Schäuble must because of the large demand only a fixed annual coupon of 0.5 per cent offer – ten years ago there were still four percent

  Because the paid federally guaranteed interest rates for its other securities have fallen sharply, Schäuble has already saved billions: this year, interest payments of 21.1 billion euros in the federal budget planned in the draft budget for 2017 even only 19.1 billion euros , 2008 interest expense 40.2 billion euros, more than twice as high.

Reasons for rising prices and falling yields, there are many: First and foremost, it is the policy of the European Central Bank. “The ECB fueled the rally,” said Harvinder Sian, interest rate strategist at US Bank Citi. In April this year, the ECB has increased since their March 2015 running bond purchase program months ago good three to 20 billion a month to 80 billion euros.

The ECB buys mainly government bonds. Since June 8, it also accesses in bonds issued by companies. In addition, it has lowered the base rate to zero percent and this lowered the deposit rate to minus 0.4 percent. Banks that invest money overnight with the central bank, thus paying a penalty.

With its monetary policy, the ECB wants to boost lending and therefore investment and the economy. She is particularly ultimately about increasing inflation, which is at minus 0.1 percent far from the ECB target of a medium-term inflation of just under two percent.

The principle of fixed income securities

• fixed rate bonds have a fixed coupon rate, which refers to the nominal value of 100 percent so for example, EUR 1 000 applies. To this amount the papers be repaid by the end of the term. At a price of 100 percent so the yield corresponds to the guaranteed interest.

• During the term of bonds traded therefore stock prices fluctuate. If the price rises above the redemption value of 100 percent increases, decreases the rate of return for newcomers, because the interest payments remain the same, but pay investors for the bonds more than they get back in the end. Conversely, it is equally, if prices fall, then climb the returns to investors who purchase at prices below 100 percent

• the prices of many government bonds in the euro area are strongly risen over 100 percent that investors despite the interest again get less money than they have created. Thus, yields for many newcomers negative.

  This is the faster, because the coupons are falling steadily. So have two-year Federal Treasury notes in Germany on August 20, 2014, a coupon of zero percent, since January 21, 2015, also applies to the current five-year Federal note.

Inspired is the decline of the Bund yields also by the recent US economic data. The weak US labor market has made the next rate hike by the US Federal Reserve likely in June. Increases had the Fed the key interest recently in December to 0.25 to 0.5 percent.

In addition, the growing political uncertainty – especially by the fear of a “Proposed referendum on United Kingdom membership of the European Union”. On June 23, the British will vote on the fate of the European Union. “Should there be a Proposed referendum on United Kingdom membership of the European Union, the yield on ten-year government bond will fall safely into negative territory,” the strategist of Landesbank Baden-Württemberg are convinced.