Funds were the biggest buyers of the first negative-yielding euro bonds sold by a non-financial company, highlighting how central bank stimulus is distorting markets.
Deutsche Bahn AG allocated 57% of the 350-million euro ($388 million) bond sale to funds, while banks bought 23%, according to a person familiar with the matter who asked not to be identified because they aren't authorized to discuss the offering. Investors in Germany and Austria bought most of the bonds.
Investors in the state-owned German rail operator will effectively pay to lend to the company after its bonds were sold to yield minus 0.006% on Tuesday. Yields on more than $10 trillion of sovereign and investment-grade corporate bonds have been driven to zero or below as central bank efforts to boost their economies inflate asset prices.
“It must feel awkward to be exposed to a credit risk and simultaneously lock in a guaranteed loss,” said Hyung-Ja de Zeeuw, an Amsterdam-based senior credit strategist at ABN Amro Bank NV. “It's the world upside down: You issue bonds and you get money for free. It's a result of unconventional policy.”
The average yield investors demand to hold investment-grade debt in euros has fallen to a record 0.8%, according to Bank of America Merrill Lynch indexes.
Buyers are prepared to accept negative-yielding Deutsche Bahn bonds because they view them almost as secure as German sovereign debt. Germany auctioned 10-year bonds with a negative yield for the first time on Wednesday, with bund rates at minus 0.056%.
“Investors probably consider this as effectively a higher-yielding, albeit negative, German government bond,” said Duncan Warwick-Champion, the London-based co-head of global credit research at ECM Asset Management, an investment team within Wells Fargo Asset Management, which oversees more than $480 billion. “The supply of bonds relative to the level of demand from investors is quite limited.”
Bloomberg News
Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.
Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
- Informative weekly newsletter featuring news, analysis, real-world case studies, and other critical content
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
