Short-Term German Bonds Pay Negative Interest
“I am not so much concerned with the return on capital as I am with the return of capital.”
Want an indication of just how bizarro today’s environment of zero percent interest rates (“ZIRP”) is?
Investors just accepted a negative interest rate on short-term German bonds:
In an auction Monday, Germany sold â‚¬3.9 billion ($4.96 billion) of six-month bills that had an average yield of negative 0.0122%, the first time on record that yields at a German debt auction moved into negative territory.
—German Yields South of Zero”; The Wall Street Journal (1/10/2012)
No, that’s not a typo.
Shell-shocked investors desperate for a safe harbor are actually willing to pay governments — at least ones presumed to be solvent — a nominal fee to hold their money.
Mattresses have never looked so good . . .
P.S.: On the theory that whatever investors most expect is least likely to happen, here’s a whopper of a contrarian prediction: U.S. Treasuries will have another stellar year in 2012, thanks to even more infinitesimal interest rates.
Of course, this time last year, no one thought that was possible — rates were already in the toilet — and yet U.S. Treasuries returned something like 30% in 2011!