This week Italy sold 2 year bonds, for the first time ever, at a negative yield. The auction for €1.75 billion 2 year bonds were sold at a yield to maturity of -0.23%. The bonds have a zero coupon, meaning investors lent their money to the Italian government and will receive a lesser amount when the bonds mature and, in the meantime, will receive no income. This is quite extraordinary given that Italian short dated bonds hit a high of around 8.10% during the eurozone debt crisis and the fact that Italy has one of the highest debt-to-GDP ratios in the world at around 135%.
The auction comes in the same week as Sweden increased their bond purchases for the 4th time this year on what is being called “QE4” and not long after ECB president Mario Draghi announced that the bank has contemplated further stimulus to the European economy.
YieldReport has already reported on more than USD$1.57 trillion of European bonds trading at a negative yield and this number is bound to go higher. Investors are caught between getting a decent return on their funds and the security of getting their money back at maturity.