Don't Let Europe's Bond Yields Hit You on the Way Out
The bond market was in a flurry on Wednesday following the news that Germany became the first eurozone country to sell new 10-year bonds at a negative yield and the second in the world to do so.
The German government raised €4 billion ($4.5 billion) through the sale of 10-year debt, at a rate of -0.05%, with a maturity date of Aug. 15, 2026. Germany joined Japan as one of only two nations that have issued 10-year debt at negative rates, TheStreet's James Skinner wrote.
With the German bund considered the benchmark for Europe, the move sets "a further milestone in the relentless fall of government bond yields around the world," according to The Wall Street Journal.
TheStreet's Jim Cramer was also not a fan of the decision.
"The German 10-year is therefore the WORST that money can buy and whoever is selling this lunatic piece of paper to people and whoever is buying it are as equally stupid as my clients and my partners were smart," Cramer wrote in a Real Moneypost on Wednesday.
Here's a look at how bond yields on the 10-year Treasury fare elsewhere in Europe.
The U.K. government managed to sell benchmark 10-year bonds (known as gilts) for the lowest-ever yield just after the referendum in which the British decided they want to leave the European Union. The yield for the issue on July 7 was 0.91%, perhaps because investors believe the Bank of England will ease monetary policy in the wake of the Brexit vote.
The beginning of the month of July marked a first for Switzerland's government debt, as well. The country's entire debt stock started trading at negative yields, with the yield on the 10-year Swiss bond hitting -0.66%. Now, that is the definition of a pure safe haven.
Germany is the second country in the G7 to see its 10-year government bond yield drop into negative territory, after Japan. On July 13, Germany issued 10-year bonds at an average yield of -0.05%, the lowest on record for a new issue, although the country's bonds, known as bunds, have traded at a negative yield before.
French yields have not yet fallen into negative territory, but they aren't all that far. The yield on the French 10-year bond hit a new record low under 0.1% on Monday. Investors are still worried about the sluggish growth in France and the country's relatively high debt burden. Its rigid labor market does nothing to encourage economic expansion.
At around 1.2%, Italy's 10-year government bond yield looks huge compared with those in France and Germany. But remember, this is a country where the banks are said to carry around 360 billion euros ($396 billion) in bad debts on their books and that is facing a politically sensitive referendum on its constitution in October.
For a country that has had general elections twice in half a year, Spain's 10-year bond yield seems minuscule at around 1.15%. But in fact Spain, who was in the PIGS group of distressed euro area states in the 2011-2012 eurozone debt crisis, is not doing too badly: unemployment is falling and growth has been rising.
The surprise European soccer champion has a yield that makes its 10-year bond look like a healthy investment opportunity: 3.09%. That's juicy compared with below-zero yields elsewhere, but remember that this country, too, was a member of the famous PIGS acronym of shame during the eurozone debt crisis of 2011-2012.
Another PIGS member, Ireland has just revised its economic growth to a massive 26% last year, prompting Paul Krugman to dub it "Leprechaun economics," as the growth spurt represents nothing else than the effect of multinationals basing their HQs in Ireland due to low taxes. Still, the 10-year Irish bond yields 0.416% -- not bad for a former basket case.
The yield on the Dutch 10-year government bond went negative for the first time on Monday July 11. The yield fell to -0.008% but recovered somewhat to end Monday back up to 0.02%. That was the day when Theresa May emerged as the only candidate for prime minister in the U.K., prompting investors to take some risk, as at least a bit of the Brexit-related uncertainty seemed to dissipate.
The tiny country hosting the European Union's capital of Brussels has the highest government-debt-to-GDP ratio in the AA-rated universe, at around 106%. Still, the country's finances look solid, with a budget deficit target below the 3% that is considered safe in the EU's book. Belgium's 10-year bond is still in positive territory, yielding around 0.178%.