Germany makes 46 million Euros profit with 4 billion bond sale and -0,61% negative yield

Today, the German government made one of its first bond issuances in 2018, and offered Federal Treasury notes (2 years) with a volume of five billion euros. With an issue yield of -0.74% last December, investor demand was even greater than supply – this was also the case in November.

Today, with an interest rate of 0.00% and a selling price of 101.15% (bond prices are always quoted in percentage points), the yield was -0.61%. Despite the slight increase in the yield, this is still a big loss for investors. And their demand is not high enough with 4.32 billion euros and 5 billion euros on the supply side. This shows that investors want to see higher yields (a smaller negative yield).

The chart for the synthetic Federal Treasury note (chart since June) shows the significant decline in the  price since December. This increases the yield because the buyers of this notes buy the bond cheaper, while the interest rate reamains the same. Since this interest rate is 0.00%, the negative return decreases. This, in turn, arises because the buyer pays 101.15% today – this is more than he receives back in two years (exactly the nominal value of 100.00%).

As always in recent years, the shortest two-year federal bonds are the best deal for the German federal budget. The shorter the term, the lower the return on investment in this bizarre zero interest rate world. In fact, the volume sold to investors is 4.03 billion euros (nominal value). Since the notes were sold at a price of 101.15%, 4.076 billion euros really came into the governments accounts today.

This is a profit of 46.3 million euros. This is an immediate profit for the federal budget, as it will only pay back EUR 4.03 billion in two years. This nice profit is payed by the small savings account holders, pension savers, life insurance savers, pension fund savers, and much more. A good portion of their money is invested in this type of investment, where losses are produced with every new investment.

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