Econintersect: In early January the German five-year government bund price rose to the point that the imputed interest at maturity would be less than zero. In other words, the price in the market was more than the nominal face value (which is repaid at maturity) plus the total of all coupons to be paid during the life of the bond. Three days ago the Japanese five-year treasury entered the same negative interest domain. Switzerland has joined the club with the first ten-year bond to charge you for ownership.
Other bond yields are falling fast. The U.S. ten-year Treasury bond interest has dropped 35 basis points to 1.77% so far this month. That is a full year of change in some years. Bond guru Jeff Gundlach has suggested that the rate could get as low as 1.0% this year before starting a sustained move in the other direction.
Below is the chart of the first negative interst ten-year bond. The imputed interst is not too clear in the image; it is – 0.043% (- 4.3 basis points). There must be a lot of these for shorter maturities. The Financial Times says there are €1.2 trillion in negative interest paper. What is amazing about that is that €1.2 trillion today is $1.4 trillion (U.S.) and it was worth close to $1.7 six months ago. And people are paying for the privilege to lose money.
- Japan Will ‘Safeguard’ Your Money Without Charge for 5 Years (GEI News, 13 January 2015)
- Japan Joins Germany With Five-Year Government Yield Evaporating (Wes Goodman and Shigeki Nozawa, Bloomberg, 12 January 2015)