Negative interests take hold in 2021

Negative interest debt has been with us for years. But governments are increasingly able to launch longer-term issues with negative interest rates and, in 2021, negative debt has taken hold like never before, with more than $ 18 trillion trading in negatively performing bonds.

For Spain, it seems that it is a matter of time before it can repeatedly issue negative long-term debt. As a revealing data, in December of last year, the Spanish Treasury issued 921 million euros of ten-year debt with negative interest, something not seen to date.

Not only this, in Wednesday’s auction, 10,000 million euros were captured with the issuance of certain 10-year debt securities (syndicated state obligation) that has reached a record demand of more than 130,000 million euros, facts which are unprecedented and offer us an idea of ​​the existing appetite for sovereign debt.

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See record demand for Spanish bonds underlines the strong start to the year for bonds in the periphery of the Eurozone, and with the prospects for monetary policy present, it seems that it will be the general trend for this year.

Why would someone buy negative debt?

It sounds crazy that someone might want to acquire a debt security, previously knowing that they will finally receive a lower amount between the coupons and their maturity. At first, the most logical alternative would be to stay in liquidity instead of accepting a loss.

But the financial reality has changed in recent years, with central banks putting their interest rates at 0% and their deposit rates in negative, charging banks to deposit their money with the monetary authority.

This has led to banking narrow margins because mortgage benchmarks, such as Euribor, are trading negative and depositors have to be lowered and more fees charged to maintain the banking business.

Also, if they wanted to get rid of debt, there is a strong and sustained demand behind. The ECB acquired 120,000 million of Spanish debt last year, which translates into the country’s net issuance, despite being purchases oriented in the secondary debt market.

The reading behind negative interests

That a government has stable financing, and even that lenders are willing to pay to acquire its debt it should be great news because it means that you have more resources to allocate them to other items of the Budget.

But there is a further interpretation, the fact that we see low or negative returns, supposes that the investment environment interprets a high pessimism about the economic outlook in the medium and long term.

Let’s think that if economic expectations were different, with greater optimism and a greater degree of certainty, they would shift their capital to other assets and, to finance themselves, States should be paying higher interest to compensate for the higher inflation resulting from a dynamic economic activity.

The simple fact that we are seeing how in different auctions the respective Treasuries of each country are managing to attract negative money translates into bleak hopes for the economy.

With this reality, What alternatives do the large holders of liquidity have? Leave your money in the bank? If they do, they are exposed to the negative interest rates that the banks are charging to the large accounts and that only see 100,000 euros guaranteed in each bank.

Due to the bank pressure and the low guarantees for high liquidity, it is preferable to acquire public debt from a State that guarantees its payment through the payment of citizenship taxes. After all, the payments of the corporate fixed income depend on the evolution of the business but, In the case of States, they are subject to the fiscal voracity that is designed.


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