The Entire German Yield Curve is Trading Below Zero

The German government could today borrow billions of Euro and in a decade they could give back to investors less than they borrowed and the investors would be happy. Does the German government have no net positive investments to make?

The global savings glut which drives asset prices higher and makes them more volatile is very much still with us. Around the world there is now over 15 trillion in negative interest debt.

From the FT.


What this shows is the market is not efficient. If it was, there would be warehouses where cash could be stored at zero interest rate.

No. Warehouses cost money. Guarding cash costs money. The whole point of negative interest rates is that there is a cost to holding cash. You're bad at this. Go away.

@Will, no I doubt it, I'm in the 1% remember? I would hold GLD (warehouse of cash, gold=money). But institutional constraints probably prevent this.

As a layabout mooch off your family, you oughtta be thrilled at the prospect of deflation. Just keep it hidden away from the help.

I put my money into gold and silver and gold a year and a half ago and my 7,000. euro investment has made me thus far 1,609.00. That's a 22% return. Every single expert says that silver will rise to to a level never seen before. Why in the hell would anybody want to buy a negative rate government bond? Precious metals has always been a solid investment in the long term.

Warehouses of cash could burn down, get flooded, eaten by pests, or stolen by thieves. Fiat, being digital, doesn't suffer from any of those problems.


All that cash you keep in drawers in Athens is driving down global interest rates.

If the economy goes bad, I still want to be your valet. I promise to nod appreciatively at your deep insights into economies and life.

Funny thing about cash. I counted my senile uncle's cash--God bless him, he died a while ago--and found out the stash of bricks of $20 that I though was $20k was in fact $100k, glued together by heat and friction. Set up a dollar bank account in Athens, took them a day to count them (they were 'old' series Jacksons, they had to photocopy each one) and that's where they are today along with my Euro stash of cash. I only got an estimated one-fourth, the domestic 'help' got the rest. But the good news--you won't believe this--is that my uncle played the stock market, bought internet stocks in the late 90s, and--this is crazy--apparently made double digits in millions of euros according to one cryptic statement I have. I'm not kidding. I have to however get some lawyers to find out what happened to this money, it's not as simple as in the USA where you show up at the local brokerage account with the statement. There's one theory that the statement is a printing error, but each page of the statement is consistent, and in Euro, not drachma. If there's any truth to this document, I'm not in the 1% but 0.01%. Time will tell. Have it under lock and key and frankly I myself don't even believe it (I assume it must be some crazy mistake, my uncle was not speculator but no way he made that much money?!) but I've had several people opine on it and some say it looks genuine. I got suspicious when one person of highly esteemed pedigree asked casually that he could figure out the truth if I simply handed over the original document to him (original documents are still important in Greece, since they have lots of forgery, but this account should be in a database somewhere).

Sure it is, hun.

Ray : I am also a published author. I could write your biography which actually might be pretty interesting,

@BC - thanks, but I try and stay low. I could pester TC about giving me a CWT, but I'd have to keep my pseudo-anonymity, I doubt I'd do it. If I'm outed, where I live in the Philippines I could be kidnapped, since it's NPA (Maoist communist) territory. You are probably safer in Thailand since except for the Muslim separatists it's generally less violent. Peace.

Dodging Maoist kidnappers in the jungle, sex tourism in Thailand, attempting to make an heir with a portfolio of hired third world mistresses, anonymous trolling on economics blogs....

Final comment about the 'original document' since most of you reading this cannot be expected to know this and connect the dots: all databases, documents, everything in Greece can be forged. If you have an original document, and it's like a US 'passbook savings account' where it's difficult to forge since the paper is special, it's easier to prove something. Hence the document I refer to showing the XY millions of euros is on such 'forgery-proof' paper. I've heard of even official tax statements being forged by bribing officials. Everything can be forged in Greece, and is, so having an 'official' statement analogous to a 'bearer bond' or "passbook savings account" like they used to have in the USA is strong evidence in your favor. I'm holding the above document under lock and key. There's a 1% chance I'm almost in the 0.1% ($100M+). It might be some crazy printing error where they forgot to convert drachma into euro, but I've had this document read several times by people competent in the Greek language and they could not find a single reference to drachma, and it's post 2002 when GR switched from drachma to Euro. Wish me luck!

Just park your cash in a CD at a bank. A warehouse to hold cash is a foolish idea for many reasons.

What’s up with the self absorbed guys named ray on this blog?

The article said the CD would give negative interest rates. Did you reed the article? @ Who isn't : I'm in the 1% y'all. Think it through.

Stop talking shit or we're cutting you off

If the entire yield curve is negative, this would be a great opportunity to implement MMT. The more you borrow, the more you get paid. But someone ends up with the "short straw".

Chancellor Merkel! Tear this lignite burning plant down!

Well, that is the plan, and the AfD hates it.

'Germany, one of the world’s biggest consumers of coal, will shut down all 84 of its coal-fired power plants over the next 19 years to meet its international commitments in the fight against climate change, a government commission said Saturday.

The announcement marked a significant shift for Europe’s largest country — a nation that had long been a leader on cutting CO2 emissions before turning into a laggard in recent years and badly missing its reduction targets. Coal plants account for 40% of Germany’s electricity, itself a reduction from recent years when coal dominated power production. ....

The decision to quit coal follows an earlier bold energy policy move by the German government, which decided to shut down all of its nuclear power plants by 2022 in the wake of Japan’s Fukushima disaster in 2011.

At the time, that was harshly criticized as reckless by business leaders, who worried that it would raise electricity prices and make their industries less competitive against foreign rivals. They also pointed out the futility of the move because no other major industrial country followed Germany’s nuclear exit.

Twelve of the country’s 19 nuclear plants have been shuttered so far.

The plan to eliminate coal-burning plants as well as nuclear means that Germany will be counting on renewable energy to provide 65% to 80% of the country’s power by 2040. Last year, renewables overtook coal as the leading source and now account for 41% of the country’s electricity.'

I seem to recall reading ever so well informed sources that renewables could not possibly provide 20% of Germany's electricity needs reliably. Or was it 25%? 35%? Well, whatever number it was, don't worry, it will look just as wrong as the one before it in a couple of years.

It was supposed to be 20% here in South Australia but we're up around 50% renewable electricity now. I expected people to be saying, "It's impossible to go above 60% renewables," but apparently they have gotten sick of this game.

Not everyone has gotten sick of it. But then, some people just don't care about facts. Oddly, that same group, which often proudly proclaims itself as scientifically literate, do not seem to understand terms like albedo either.

That's whatever percentage it is with a lot of help from the interconnectors from NSW and Victoria when the sun isn't shining and the wind isn't blowing.

I entirely sympathise with the aim of reducing emissions. Completely. That said, any discussion of % of power usage belonging to non dispatchable renewables is pretty pointless, unless you don't need any security of supply.

Also - Radelaide FTW

The state can island and supply itself. It's a lot cheaper not to though. After all, South Australia has been exporting electricity to Victoria all day.

@Crikey- Australia only has 25M people, it's too to matter, no heavy industry, arguably not as cloudy as Germany. Germany's decision to forgo nuclear and coal in favor of solar, given their climate, is a disaster. They will pay the price 10 years from now. I also hear they are not using robots as much as Japan is, and as their workplace ages they will do badly IMO.

It is true the first thing solar panels and wind turbines do when they are installed is check the internet to determine the population of the nation they are installed in and then stop working if it is over 80 million.

But despite this, the lowest bid for solar in Germany is now 5.5 US cents per kilowatt-hour. Funny that.

As coal pushes billions in health costs onto Germany just the savings from that alone may pay for the shutdown of German coal. If it does than clearly it's not a disaster for German. In addition there is the slowing of global warming that will come from the reduced emissions. That also has value to Germany. The situation with externalities from burning coal is so bad I'm actually inclined to think things will be more likely to be disastrous if they continue to burn it.

SA most expensive electricity in the world, what little industry is there is leaving. The only thing that keeps Adelaide alive is Commonwealth Gov money. Adelaide is just a giant money pit attached to Australia. To keep it going the Gov is buying French nuclear subs, sending them to Adelaide and then going to convert them to Diesel Elec and adapt the weapons platforms to US standards. If and when this happens they will be obsolete, but hey, it keeps Adelaide afloat. Who needs a navy when you have a state full of leeches.

Yes, all this is true. Crackers have been banned from climbing Uluru so there will be no witnesses when we install the French nuclear reactors under it. Meanwhile we've been sending young people out of the state, not for better work opportunities, but to act as a fifth column when we drive Uluru across the desert and crush Canberra and force Australia to raise the old age pension even higher.

But I don't see what this has to do with renewable energy.

I imagine renewables could supply 100% if cost is not a major concern. Right now, it looks like average German household electricity rates are about 3 times those in the U.S.

The German wholesale electricity price is what matters for utility scale renewables and looks like it averages around 4.5 US cents per kilowatt-hour. This is low by European standards making Germany a large net exporter of electricity. On the other hand, as in Australia, a high retail price encourages energy efficiency and distributed solar.

The joys of well hidden mercantilism. German household electric rates are very high. However, the rates Mercedes pay in Tuscaloosa and in Rastatt seem to be more or less the same, according to some documentation I have seen (yes, exchanges rates, different contract terms, etc, etc).

Most people looking at German electric rates have a hard time realizing that it is the people who voted for the Energiewende that are paying for it - and that German companies would never want it to be any other way.

The flip from "higher rates are a myth" to "higher rates were the whole point" is amusing, to be sure, but it also highlights the level of misinformation served to the voters in the course of enactment.

'The flip from "higher rates are a myth" to "higher rates were the whole point" is amusing'

What flip? There is a distinct difference in what I pay for electricity as a retail electric customer in Germany, and what Mercedes pays in Rastatt. You may not remember when I was posting things like this -
prior_approval May 21, 2015 at 1:29 pm
'Residential prices. As one might expect from a mercantilist society, the cost of wholesale (industrial) electricity is less than that in the U.S., as former GE chairman Immelt discovered when talking about what a German steel mill pays for electricity - he was mocked for being not only utterly inaccurate, but not even being aware that German industrial customers paid less for electricity than American ones. .... That residential customers would take the largest burden was part of the longer term political plan in gutting the Energiewende. However, it seems as if German electrical consumers - a group that pretty much maps 1 to 1 to German voters - feel that shutting down nuclear power is a worthwhile goal, regardless of what it costs.'

As noted in 2015, German voters knew (well before 2015) that they would be raising their electric rates with the Energiewende.

Hard as it might be to imagine, with renewables generating more electricity than coal in 2019, Germans are still aware of it. And still support the Energiewende as general policy.

Maybe you are confusing Germany with somewhere else?

No Tom is actually onto something. And you – as often – are not.

"German voters knew (well before 2015) that they would be raising their electric rates with the Energiewende."

Yes! We were told!

I never forget our then federal environmental minister and still leading thinker of the of the Green party's marxist wing who has put the Energiewende into action, Jürgen Trittin, and his claim back then that the Energiewende will cost the average German household about one scoop of ice cream a month ("Eine Kugel Eis im Monat").

Fast-Forward 15 years and it's more like two scoops of ice cream a day. Around 70% of the average German's electricity bill goes to government agencies/programs. Our electricity grid is constantly on the brink of collapse, which it would if it weren't for our neighbouring countries for us to dump our excess electricity on.

Your wonky statistics say: "We're renewable energy net exporters!" - but reality adds: "yap and we're losing money at it!".

And it's not only excess energy that threatens the German grid. We almost broke the entire european grid multiple times in the last 12 months because with us just shutting down coal- and nuclear plants we reduced backup inventory that is needed every time the wind stops blowing.

But I guess me ruining your parade of being the sole conveyor of facts from Germany to your countrymen makes me a right winger anyways, so why not just head over to

And see for yourself: If Germany isn't importing electricity for a high price, we're exporting it for almost nothing – or even better paying for getting rid of it. At 6 June this year the market price of 1 MWh was MINUS 44 EUR.

And no, this is not passed down to the German consumer as savings but as additional cost.

The Green Deal championed by some US democratic presidential candidates has to answer the question: How will they prevent the Deal being nothing but what it was in Germany –
A major redistribution of money from bottom to top, and from the bottom to foreign countries?

Outstanding takedown of the board douchebag. I award you 10 internet points.

The wholesale cost of electricity and grid charges comes to around 43% of German residential electricity bills, but then an electricity grid is pretty socialist when you think about it, so I guess that counts as a government program.

OT, but in the ballpark and question of the day:

Are US Treasury yields headed towards Euro-Japan land? That is zero?

Given globalized capital markets, and secular trends, what would prevent US Treasury yields from equalizing with Euro-Japan?

Wonder when the curve of New Germany's (formerly known as Greece, but the naming rights were sold in the bailout) bonds will also turn to negative.
Can't blame the ECB for this one though - Draghi did all he could, it's not really a monetary problem, just a monetary symptom. If one really wants to blame monetarists, the reasons would probably be embedded in the very foundation of the euro-zone.

It‘s about trust: Germany is reducing it‘s debt (national, state, municipal) by 2% this year. Has been reducing it in the last years, too. NMT is bullshit: it eats up trust. France and Italy tried it post-war, failed and gladly switched to monetary discipline, leading to EWR and, finally, EU and ECB.

Certainly it's about trust, but the limits are uncertain and unlikely to unresponsive to innovation. There seems to be a lot of demand for very safe investments. Is there a way to supply it that we can be confident in?

What is the value of something that you have to pay someone to rent it?

This isn't looking for return. This is hoping it will be there in a year. China is likely going to start shooting in Hong Kong, and this is likely the sign of the Mother of All Currency Outflows. The other side to this is the devaluation of the Yuan as the Chinese can't support the price with too many sellers.

When an asset prices rises it simply means the money that paid for it is worth less.

"What is the value of something that you have to pay someone to rent it?"

You pay for the good credit of the economy whose debt you hold and you aren't feeling too ambitious about returns.

"When an asset prices rises it simply means the money that paid for it is worth less."
In the common case, this is false.

>you aren't feeling too ambitious about returns.

Heh. If you believe that I have a bridge to sell you. Didn't it take somewhere between $7-14 trillion to bail you guys out last time?

Something like this has driven the Japanese financial markets for more than a decade, essentially that the bonds are worth more than cash. They can be leveraged for a return. You pay someone to rent your money so you can leverage their future cash flows. That worked for Japan because there were ample opportunities for return in the rest of Asia.

Or the buyers are afraid of catastrophic loss and are willing to tolerate a small loss.

Forget a bridge - wanna buy an island with a used temple on it?!

After hedging currency risk, short term German bills may yield more than US bills. I think the screen on the terminal is XCCY.

I understand the warehouse cost issues for individuals. Why can't / doesn't the US treasury issue EUR denominated debt and just hold the proceeds? Why can't the fed pay 0% on EUR excess reserves? What's the fed/treasury's cost of holding it? If Trump wants to strengthen the EUR (and Yen) could he do this to put a floor on foreign rates?

My guess is there are some type of statutory restrictions on those buying the debt and/or on the fed/treasury trying to directly sell it. Also, CBs don't like the idea of interfering in other nation's monetary policies.

Assuming it was doable, just floating the idea may be enough to put a floor in.

US companies and EM countries can and do issue bonds in EUR.

A savings glut makes asset prices higher, but why would it make asset prices more volatile? If there are more available savings, this should increase liquidity and be a cushion against falls in asset prices. Certainly, the ten years since the financial crisis has been one of relatively stable asset prices and the longest bull market in the history of US stocks--cash rushes in to buy even small dips.

Depends on how you got the savings glut. If it is scared money, then it would be more volatile than if it came from a more stable place. There's a lot of instability in the world today that hasn't been properly priced. I personally expect more going forward.

What impact do the Basel Accords have on the yield curve? Is there literature on this?

Or Basel + no more AAA mortgage backed securities...

That's kind of some scary shit. The whole world turning Japanese?

According to the American right wing, the country is turning Mexican. According to Japanese birth rates, Japan is becoming less Japanese.

“Does the German government have no net positive investments to make?”

I don’t think that is the right question. The question is why those borrowing them money have no net positive investments to make.

I really really can't think of any good argument why they shouldn't issue bonds until the implied rate at each point of the curve is at least (nominal) 0%.
In extremis, if they really can't think of anything productive, just hold the face value of the debt at the central bank, and then split the difference between the amount raised and the face value between all citizens as a one-off rebate.

There certainly is no dearth of things to be invested in in Germany. If they are not market-profit yielding then the government could/should step in. All this debt repayment on the part of the German government is simply back-loading a tonne of investments that will need to be made later, when perhaps the interest rate is higher.

Ever wondered how much interest the U.S. is paying for the privilege of being in debt to the tune of more than one year's GDP? 'Net interest payments on the debt are estimated to total $393.5 billion this fiscal year, or 8.7% of all federal outlays.' Think about that for a moment, while considering that by reducing interest payments, the German government is also decreasing the amount of tax money that is paid out simply for the privilege of being in debt.

It is an interesting discussion in its way - after all, there are a (smallish) number of Americans who have benefitted quite handsomely from the government transferring money from taxpayers to their private accounts.

Which is not normally the perspective employed when talking about government debt, but which is simple reality (yes, Social Security confuses this straightforward picture a bit in the case of the U.S., as a quarter of the federal debt is owed to the trust fund).

They're just going to eventually have to undertake a lot of spending later - things are not running all that smoothly, seems like there is a lot of projects that have been shoved aside in order to pay down debt when not necessary. They will end up paying for these later when it will likely be less advantageous.

If they don't want to do anything else they could at least cut their insane tax rate.

'They're just going to eventually have to undertake a lot of spending later'

I grew up in Virginia, which had a good system of roads throughout my life there. Guess what else Virginia had? A prohibition on using debt to fund its road network for most of my life there. 'Road construction would become an important political issue in Virginia in the 1920s. Although virtually everyone agreed that more and better roads were needed, people disagreed over how to finance them. Some wanted the state to authorize highway bonds to finance construction. In effect, this would mean borrowing money. Others opposed highway bonds and wanted to construct roads by using existing state revenues only. This would mean slower growth but would keep the state out of debt. The leader of this group was Harry F. Byrd, a state senator, newspaper owner, and apple orchardist from Winchester. Because of his leadership, a 1922 state referendum on highway bonds was defeated by a large margin. Virginia's roads would be financed through existing revenues through a plan that became known as "pay as you go."'

'If they don't want to do anything else they could at least cut their insane tax rate.'

Out of curiosity, how will the Germans pay their debt - much less increase it - by reducing their tax rate? Obviously, the U.S. has found some answer for this, so it should not be too hard to explain. After all, the U.S. pays 8.7% of its entire federal budget to service its debt, undoubtedly thanks in part to a lower tax rate, so there must be some beneficial trick involved that Germans are not understanding. Much the same way Germans never seemed to understand Walmart's low price, forcing the chain to leave Germany after losing an estimate 1 billion dollars-.

We have different perspectives - I grew up in one of the more fiscally responsible states in the U.S., and have yet to see why the successful model I grew with in the Commonwealth is different from Germany's, at least in a rough sense. And this interest in actual fiscal responsibility - particularly as reflected through not using public debt - apparently makes me a hard leftist in this comment section.

You can only say 'Charge it!' for so long, even in Flintstones reruns.

How much does Virginia benefit from all the spending the federal government does?

For road building? Not much, excluding interstates obviously, at least when I lived in Fairfax (yes, there is the GW Parkway and Skyline Drive, both of which are fine roads by any measure)-.

But sure, Virginia benefits from being the home of the world's largest naval base, which also explains why Virginia Beach is the largest city in Virginia.

However, I'm pretty sure that most of the Commonwealth apart from Hampton Roads and NoVa does not particularly benefit from federal largesse.

I actually consulted with Tyler on financing options for the constructions I did on my island.

Tabarrok: "The global savings glut which drives asset prices higher and makes them more volatile is very much still with us." I never thought I would see that sentence on this blog, but there the sentence is, with "savings glut", "drives asset prices higher", and "volatile" in the same sentence. I like to post comments at Sumner's blog about the mistake of "relying on rising asset prices for prosperity", to which Sumner responds the way one might expect a monetarist to respond: he takes it personally. Why is it a mistake to rely on rising asset prices for prosperity? Ask Tabarrok's (and Cowen's) Austrian friends. I also like to point out that the miracle of markets will fix just about anything, including a savings glut (the consequence of excessive inequality), if governments and central banks allow markets to work their miracle. The problem, as we have learned in the past, is that the cure can be worse than the disease. The problem, if we don't allow markets to work their miracle, is groundhog day.

If the bull in the China shop (that would be Mr. Trump) breaks enough of the China, we may witness markets work their miracle, not out of choice but because the Fed's toolbox is just about empty. Trump's latest nominee to the Fed supports a combination of zero interest rates (to push up asset prices) and a return to the gold standard (to push down asset prices). Thus, it's likely a toss of the coin, not well thought out policy, that will determine whether the Austrians finally have their way.

Cowen doesn't care much for negative interest rates: But his prescriptions are at odds: First: "if monetary policy is insufficiently expansionary, that is going to require an increase in the ECB’s inflation target, or a move to nominal GDP targeting, not a jerry-rigged tax on deposits". What is an expansionary monetary policy? One with lower interest rates; indeed, negative interest rates in extreme cases. But isn't this the proverbial pushing on a string? Thus, Cowen's second prescription: "if a reduction in the German savings rate is in order, any policy addressing it should probably come from the German government, through higher expenditures on Germany’s ailing infrastructure." Oh, my, Cowen is proposing that Germany copy China and adopt an expansionary fiscal policy, using infrastructure as the tool. What's next, will Cowen propose an expansionary fiscal policy in America, using infrastructure as the tool? These are interesting times.

You can find mortgage financing at 0.3% now, over 10 years, no shit. That's €3k a year for a million euro property.

The Inflationphobic culture that is Germany.

Why are we still taxing labor?

Also, if there's a savings glut, doesn't that make Yang's UBI idea easier to finance?

A global wealth tax would be a nice diet for the global savings glut, no?

Half point of negative yields is the monopoly fee paid to government for central bank liquidity. There is an implied insurance contract that Germany provides, it will not abandon the Euro. That contract is worth a half point ATM fee, it is a badge that guarantees big banks are officially regulated and properly insured.

One explanation for how this is possible is that it cost money to store cash (eg, for security).

But I wonder... Could people also be afraid that the government will at some point declare cash to no longer be legal tender? Probably with some small personal allowance that can be exchanged for digital money, but not allowing exchange of large amounts?

Are we in situation described by cutting edge macroeconomist John Stuart Mill in 1829:

When “money” is in “request” all other commodities are in “comparative disrepute”?

Are those who buy bonds the same people who are sustaining from buying other commodities right now?

This beautiful little model of Mill is forgotten for no obvious reason.

People buying negative yielding debt expect to capture capital gains and/or to realize currency conversion gains- the bunds could get even more negative in yield, or the Euro could appreciate enough versus dollars, yen, or any other currency. Lots of someones will be left without chairs at some point, but for now the music is playing.

European banks are required to keep some of their capital in European government debt, even if it costs them. That's the savings glut, there are trillions of Euro and dollars that need a safe place to park. The safest place is government debt (of safe countries), and that safety comes at a cost.

There's too much capital and not enough places to use it.

People have too much money.

I can totally help.

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