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You may have noticed that banks have been offering pretty low interest rates on savings lately.
But at least they’re not negative.
For the first time in China’s history, the government has sold debt at an effective negative interest rate.
In plain English – investors pay China to take their money.
The Chinese government sold US $ 4.7 billion in euro-denominated bonds mainly to institutional investors in Europe, the Middle East and Africa.
The 5-year bonds were rated at minus 0.152%, while the 10- and 15-year bonds offered positive returns of 0.318% and 0.664%, respectively.
Why should anyone As with many financings, the returns are all relative:
For starters, there aren’t many safe places to find income right now. According to the ICE BofA Global Broad Market Index, there is over $ 16.9 trillion in outstanding global debt that is trading at negative returns. In comparison, 5-year German Bunds (viewed as a safe haven) offer a negative 0.74% return.
Investors are also looking to get more exposure to the People’s Republic. China’s economy grew 4.9% year over year in the third quarter, and the IMF expects China to be the only major economy to grow in 2020.
But why not under the mattress? Analysts said much of the demand came from investors who need to own Chinese bonds to meet their index requirements. Investors expecting deflation might also be willing to tolerate a negative-yielding bond. Others just like to feel pain.
In total, the supply generated a demand of more than 20 billion US dollars.
Take away: The Chinese issue comes just weeks after Beijing sold $ 6 billion of US dollar-denominated debt directly to US buyers for the first time in decades, generating record demand.