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Just when you thought the fixed income world couldn’t get any stranger comes news that a German bank, Berlin Hyp, has sold the first covered bond with no coupon and at a negative yield. The bank issued €500 million of covered bonds at a yield to maturity of -0.162%.
Investors are paying the bank to hold their money for the next 3 years. It’s a situation that could hardly have been imagined 12 months ago.
While much of Europe’s government debt is trading at negative yields, this is believed to be the first time a non-government body has issued bonds starting with a negative yield. Covered bonds are considered to be one of the safest assets in fixed income as the bonds are secured by both the issuing bank and a ring-fenced pool of assets, whereas a corporate bond is secured by the company’s assets in general.
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