As armies of fixed income strategists battle over whether US Treasuries are facing higher or lower yields, Greece has no such qualms and in a historic shift today, the former bond market pariah and Eurozone's most indebted nation, joined the exclusive club of negative-yielding European nations when bond investors lined up to pay the nation that was at the heart of Europe's sovereign debt crisis.
A sale of €487.5 million of 13-week bills on Wednesday drew Greece's first-ever negative yield of minus 0.02% as investors now pay Athens for the privilege of lending it cash, as Bloomberg first reported. Greece joins the likes of Ireland, Italy and Spain - not to mention virtually all core Eurozone nations - which benefit from the ECB's insane monetary policy and deepening fears of a global recession.
It’s been an unprecedented turnaround for twice bankrupt Eurozone member, whose bondholders suffered massive losses back in March 2012 when the country was forced to accept the biggest bond restructuring in history, bringing the Eurozone to the verge of collapse.
Just a few years and several trillions in bond purchases by the ECB later, the region is grappling with an altogether different problem - the spread of negative yields, which reduces borrowing costs for governments in a form of soft default, one which is crushing savers, pension funds and insurers, and which has prompted some of the most respected names in finance to shriek in terror as the cost of money in even Europe's most insolvent nations is now negative.
Jon Day, a fixed-income portfolio manager at Newton Investment Management, said the move was “another symptom” of the “global grab for yield, especially in euro-denominated bonds,” pointing out that short-dated Greek bonds were previously one of the few government markets where a positive return was on offer. Indeed, as recently as 2017, the Greek 13-week bills yielded a "generous" 2.70% before they started their journey to NIRP just over two years ago.
Still, despite Europe's artificial, central bank-propped up bond market, nothing has been fixed with respect to the Greek economy: "There remain substantial risks around Greece’s financial position and it remains vulnerable to a significant economic slowdown,” Day said. "Current yields on their bonds do not reflect this risk."
Greece foray into negative rates comes after the ECB cut its deposit rates even deeper into negative territory and said it would restart quantitative easing (unlike in the US, the ECB has no qualms about calling "not a QE" by its real name). Investors are also looking toward fiscal stimulus as the ability of monetary policy to stoke growth is tested to its limits, and unlike Germany, we expect Greece to fully take advantage of negative yields to stick it to creditors "investing" with other people's pensions. Earlier this week, the nation also took advantage of record-low borrowing costs by selling 10-year bonds this week at a yield of 1.5%.
Greece’s government is forecasting 2.8% economic growth in 2020, which it says puts it on track to meet a budget target agreed with creditors while still enacting tax relief measures.
“Greece issuing negative-yielding bills is more evidence of the positive effect that negative interest rates and QE has on debt sustainability for governments,” said Mizuho's head of rates strategy Peter Chatwell, even though it is not quite clear how Greece accumulating even more debt to "fix" a catastrophe that was the result of record debt actually works out in the long run... but that's ok, by then it will be someone else's problem.
"Side effects are large for banks and investors, but for the governments there are very significant benefits."
Indeed: as the world's banks and investors founder, at least perpetually corrupt and incompetent governments are rewarded, and all it took was several years of insane monetary policy by a former Goldmanite to unleash the biggest revolution in the European bond market in history, one which will end in the biggest bond bubble crash ever seen.
But - as the supporters of the ECB will tell you - "not yet"...