This week, investors started paying for the privilege of holding Finnish government bonds that won't mature for another decade.
Finland, the Nordic region's worst-performing economy, is now the only non-AAA issuer in Europe with a negative 10-year yield. Creditors seem uninterested in what the ratings companies think.
Ten-year yields on German, Swiss, Dutch, and Danish government bonds, already negative, have traded lower this week. Finland crossed the zero threshold to join the club on Tuesday as the bond market runs out of top-rated sovereign assets to hoard. Euro-zone bonds are also benefiting from the European Central Bank's asset purchase program.
“In the short term, the issues surrounding Deutsche Bank, and broader concerns about the banking sector, have triggered demand for safe haven bonds, and this has pushed down Finnish yields,” said Jan von Gerich, chief analyst at Nordea in Finland. “Deutsche's problems have driven down yields, but in the big picture, Deutsche is just one of the symptoms.”
The fact that Finland is no longer a top-rated issuer is secondary because “trust in credit ratings faded long ago,” von Gerich said. “Many investors have relaxed their criteria for credit ratings” and there are “bound to be fewer investors who still require an asset to be AAA than used to be the case.”
While acknowledging that lower rates are of course “positive” for state coffers, Finland's Prime Minister, Juha Sipila, also expressed unease at the development.
“I hope this will turn positive, because it's not normal,” Sipila told Bloomberg. “But of course, it's a good thing for the state budget.”
Among euro nations without a AAA rating, “Finland is the strongest,” according to Juhana Brotherus, chief economist at Helsinki-based housing credit institution, HYPO. Though Finland has failed to stay within the EU's requirement to limit public debt to 60 percent of GDP, “when international investors compare us to others,” what they see is “not as worrying” as debt levels elsewhere in Europe, he said.
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