Greece brought debt to negative territory

UNITED STATES, WASHINGTON (OBSERVATORY) — While an army of fixed-income strategists argues about whether the yield on the US treasuries will be higher or lower, Greece, the country with the most debt in the eurozone, has joined an exclusive club of negative-income European countries when bond investors lined up to pay a country that remained at the center of the sovereign debt crisis in Europe.

The sale of 13-week bills worth € 487.5 million on Wednesday led to Greece’s first negative return of -0.02%, as investors now pay Athens a privilege to lend money, Bloomberg reported. Greece has joined countries such as Ireland, Italy and Spain, not to mention all the major countries in the Eurozone, benefiting from the ECB’s crazy monetary policy and growing fears of a global recession.

It was an unprecedented turnaround for a twice-bankrupt eurozone member whose bondholders faced huge losses in March 2012, when the country was forced to carry out the largest bond restructuring in history, and then the eurozone was on the verge of collapse.

After several years of buying ECB bonds worth several trillion euros, the region faced a completely different problem – negative returns, which reduce borrowing costs for governments in the form of soft defaults, lead to the collapse of depositors, pension funds and insurers, forcing the most respected representatives of the financial world to tremble from horror, because the value of money is negative even in the most insolvent countries of Europe.

John Day at Newton Investment Management said that the move was “another sign … of a global attempt to get profitability, especially in Eurobonds,” noting that previously short-term Greek bonds were one of several government markets that showed positive returns. And more recently, in 2017, Greek 13-week bills brought a “generous” 2.70% before they began their journey into the territory of negative interest rates 2 years ago.

Despite the artificial European bond market supported by the central bank, the Greek economy has remained unchanged.

“Greece’s financial situation has significant risks. It is vulnerable to a significant economic slowdown. The current bond yield does not reflect this risk,” said Day.

In Greece, negative interest rates began to leave the territory, when the ECB further lowered deposit rates on negative territory and announced that it would resume quantitative easing. Investors pay attention to the fiscal stimulus, as the ability of monetary policy to stimulate growth is tested. And unlike Germany, Greece can take full advantage of negative returns to tie it to lenders who “invest” in other people’s pensions.

Earlier this week, the country took advantage of the record low cost of borrowing by selling 10-year bonds with a yield of 1.5%.

The Greek government predicts that by 2020, economic growth will reach 2.8%. According to him, this will help achieve the budget goal agreed upon with creditors when introducing measures to reduce taxes.

“Greece, issuing negative-yield bills, is further evidence that negative interest rates and QEs have a positive effect on debt sustainability for governments,” said Peter Chatwell of Mizuho.

Although it is not clear how Greece, which accumulates so many debts, will cope with the catastrophe resulting from a record debt. But this is normal, by then it will be someone else’s problem.

“Side effects are dangerous for banks and investors, but they bring significant benefits to governments,” Chatwell said.

Indeed, eternally corrupt and incompetent governments benefit. It took only a few years of the frantic monetary policy of the former Goldmanite to unleash the biggest revolution in the European bond market, which will end with the biggest bond crash in history.


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