Zero Hour: Panicked European Investors Pay Germany to Take Their Money
As investors panic over the debt crisis in Greece, Italy, and Spain, Germany has emerged as a safe haven for investors--so much so that the interest rate on ten-year German government bonds dropped below zero on Friday. That means investors are so desperate for security that they are willing to accept less money at the end of ten years than they invest today; they will pay the German government to take their money.
Bloomberg News reported on June 1:
Germany's 10-year bunds, Europe's benchmark government debt securities, headed for a seventh weekly advance, driving yields to an all-time low. Austrian, Dutch and French yields also fell to records as a report confirmed euro-region manufacturing contracted in May...
The German two-year yield slid to as low as minus 0.002 percent, the first time the rate on the securities has been negative, according to data compiled by Bloomberg, and was at 0.005 percent as of 9:03 a.m. London time. The price of the zero percent note due in June 2014 was at 99.99.
There is hope for Europe yet. Last week, in economically-troubled Ireland, voters voted yes--by more than a 20 percent margin--in a referendum on Europe's fiscal treaty. The vote broke a string of anti-incumbent results across Europe. The result was an immediate decline in Irish bond yields--the price, effectively, that the Irish government must pay to borrow money.
For now, Germany--which endured painful debates about pension reform and government spending a decade ago--is still the safest bet for crisis-weary investors in Europe.