Germany is planning to sell 30-year bond with no interest at all. It sounds odd as it means whoever buys the bond will pay a price for holding the bond and get back his or money after 30 years. Why would anyone do so? They can simply save their money in a saving account and even get more money in 30 years as banks generally pay interests. Saving in a bank account could almost be assumed to be risk free; however, this is not absolutely risk free. In finance, the risk-free rate is considered to be the 10-year UK bond yield or the 10-year US bond yield. At the moment, they are not zero at the moment; anyone who buys the zero-interest rate bond must believe these German sovereign bonds are less risky than the 10-year US bond or the 10-year UK bond.
Why do some people believe the German bonds safer than the US bonds or the UK bonds? Germany is an economy which is different from the UK economy or the US economy and it is a strong economy. In addition, comparing with the increasing budget deficit in the US, the German budget deficit seems to be much under control. Moreover, the political environment surrounding Germany is rather stable and predictable. These elements and more make the German sovereign bonds attractive to some investors.
In addition, the German banks are setting very low interests and the zero interest rate may also be a cause of the general low interest rate environment as well.
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