Germany’s Negative Yielding Debt

In Europe, desperate times calls for desperate measures. Now the public pays the government to hold their money.

From the Wall Street Journal, (bold emphasis mine)

Investors agreed to pay the German government for the privilege of lending it money.

In an auction Monday, Germany sold €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.

This means that unlike most other short-term sovereign debt, in which investors expect to be repaid more than they lend, investors agreed to be paid slightly less. And they are willing to do that because they are so worried about the potential for big losses elsewhere.

That is particularly the case in Europe, where sovereign-bond markets have been rocked by a years-long crisis. Switzerland and the Netherlands, also seen as relatively safe countries in which to invest, are among the few that have sold debt with negative yields in recent months.

In other words, German, Swiss and Dutch debt holders are losing money in exchange for safety.

Negative yields are symptomatic of an aura of uncertainty, the intensifying state of distress, the insufficiency of an alternative and the urgency to seek safehaven.

Interesting times indeed.

Euro Debt Crisis hastens development of Bond Capital Markets

Opportunities emerge in every crisis. Though I am not referring to political opportunities (ala Emmanuel Rahm)

The Euro debt crisis has been shifting funding dynamics of the Eurozone's corporate world from the banking sector to the corporate bond markets.

From the Henrik Art of Danske Research

A recent report by Fitch confirms that European companies are increasingly relying on bond markets for their financing as bank lending becomes less attractive. By the end of 2010, corporate bonds represented 73% of the EUR1.3trn in debt used by 161 large European companies examined by Fitch.

Going forward, the trend towards US-style funding, where debt capital markets are a more important source of corporate funding than traditional bank loans, is likely to continue. The ongoing fundamental and regulatory challenges for the European banks that translate into persistent higher funding and capital costs are the key reasons for this development. In this respect, investment grade blue-chip corporates have access to cheaper funding in the bond market than their peers in the financial sector. As such, the critical mass required for a company to go to the capital market is getting lower.

According to Fitch, the European bond market continues to broaden and deepen and thus the trend towards increased funding disintermediation is occurring across virtually all industries and rating categories. To illustrate this point, for the first time, the high yield companies in Fitch’s sample group ended a year (2010) with more bonds than bank loans.

Economically unsustainable institutional political platforms are being forcibly reconfigured by the markets.

The stranglehold of the central banking cartel financed and facilitated welfare state is in a process of erosion.

ECB Intervenes in Bond Markets, More to Follow

Following the global market route, a reportedly reluctant ECB has started intervening in Europe's bond markets.

From Bloomberg,

European Central Bank President Jean- Claude Trichet may be forced to step up his fight against the sovereign debt crisis after a resumption of bond purchases yesterday failed to halt a rout in Italy and Spain.

Over opposition from Germany’s Bundesbank, Trichet yesterday sent the ECB back into bond markets as yields on Italian and Spanish yields soared, threatening the ability of the euro region’s third- and fourth-largest economies to borrow. As the sell-off continued, traders said the ECB purchased only Irish and Portuguese securities, suggesting the central bank is reluctant to put up the funds needed to tame a crisis it says governments are responsible for fixing.

“The ECB is being dragged unwillingly back to the table, having tried originally to palm off responsibility for restructuring the euro zone to governments,” said Peter Dixon, an economist at Commerzbank AG in London. “If the ECB is serious about playing its part in holding the euro zone together, then it’s going to have to spend a considerable sum.”

The ECB, which ceased buying bonds four months ago, was forced back into action after governments failed to convince investors that a package of new measures agreed to last month will prevent the crisis from spreading. The ECB may be hesitant to intervene in Italian and Spanish markets, which according to Bloomberg data have a combined 2.2 trillion euros ($3.1 trillion) worth of outstanding bonds, for fear of starting an engagement it can’t get out of.

As expected, once the distress on the marketplace becomes pronounced, global central banks will set aside political squabbling to give way for more inflationism. [All these meant to save the cartelized global banking system]

Yet if this episode of bloodbath continues, expect the ECB to expand its purchases to include Italian and Spanish bonds. That’s the ECB’s version of QE (asset purchases from money printing) now at work.

So you have 3 major central banks intervening in the financial marketplace over the past 48 hours, the Swiss, Japan (yesterday’s record 4 trillion yen or US $50.6 billion at the forex market) and now the ECB.

Global central bankers appear to be synchronizing their efforts at an escalating scale. Expect even more.