The NIRP club, or those countries whose 2 Year (or longer) bonds trade inside negative territory as presented yesterday [10], is happy to welcome Finland among its ranks, following the country's 2 Year bond briefly touching on -.008% minutes ago (since "recovering" to 0.0000% briefly). Other proud member countries include Holland, Germany (which earlier issued 2 Year debt at sub zero rates for the first time ever), Denmark, and Switzerland, or Europe's AAA-list. On the other end, the peripherals continue to trade on an ever more unsustainable basis. Europe has now become one big pair trade: everyone is long the viable countries and short the... less than viable ones.
[11]
And some more color on Germany's just concluded 2 Year bond issue which priced at -0.06% via Reuters:
Germany sold 4.17 billion euros of two-year government bonds on Tuesday, auctioning the paper with a negative yield and meeting higher demand than at the previous comparable sale. It was the first time a two-year issue had been sold with a negative yield.
The auction attracted bids worth 2.0 times the amount on offer compared with an average of 1.87 at other two-year auctions this year, according to Reuters data.
The average yield was -0.06 percent, compared with 0.1 percent last time and an average of 0.173 percent.
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, LONDON
"There is no doubting that this was a strong auction and also that there is demand for German paper in negative yields. The auction should serve to give some of the yield-grab positions a pause for thought as, if investors are able to overcome the psychological problem of paying to lend money to Germany, then the Schatz is at risk of re-rating to a more normal level to the ECB deposit rate."
PATRICK JACQ, RATE STRATEGIST, BNP PARIBAS, PARIS
"Some institutions must hold safety assets because whatever the price, whatever the yield, they need it on their balance sheet and there are fewer safe havens globally. There's a large amount of liquidity in the global system and this is dragging yields down into negative territory.
"We are also in an environment where the market is expecting that after the ECB rate cuts it could deliver further and could even put the rate on the deposit facility into negative territory."
ERIC WAND, STRATEGIST, LLOYDS BANK, LONDON
"It looked pretty decent. Given where the yield is you've got to say that it was a decent sale. Bid to cover looked pretty good. The amount retained shows you're not seeing the Bundesbank being required to mop everything up.
"The concession you've seen on spread versus other semi-core product, with the spread compression there, has left (the Schatz), I'm loath to say looking cheap, but on a relative basis they're offering more 'value' than they were a few weeks back."
NICK STAMENKOVIC, BOND STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH
"It is no surprise that we have negative yields at a two-year auction in Germany. We've seen yields not just in Germany but in other European countries as well move to negative territory following the ECB's decision to cut the deposit rate.
"Against that backdrop and with the economic picture looking so poor at the moment, yields could remain negative at the short end for some time to come and could even go further into negative territory in the near term."
BACKGROUND:
- Shorter-dated German yields have fallen below zero since the European Central Bank cut its deposit rate to zero earlier this month. The knock-on effect has also pulled yields lower along the curve.
- Heavy coupon and redemption flows from triple-A rated euro zone issuers this month, coupled with demand for safe-haven assets as the debt crisis rumbles on, are also supporting German debt.