Switzerland has become the first government to effectively charge investors for the privilege of lending to it, auctioning 10-year government bonds with a negative yield. Kirsty Basset looks at why this is happening.
Paying a government to lend it money for 10 years - seems like a strange investment. But that's what happened at a recent auction of ten year Swiss government debt. The Swiss Treasury sold over 232 million Swiss francs of bonds maturing in July 2025 at a yield of -0.055 percent. Those who bought the bonds effectively paid for the privilege of lending to the Swiss government, the first time this has happened. Anywhere. But in a world of zero interest rates and central banks buying bonds to fight deflation, it's something we can perhaps expect more of. Admiral Markets' Darren Sinden. (SOUNDBITE) DARREN SINDEN, MARKET RESEARCH AND CLIENT RELATIONS MANAGER AT ADMIRAL MARKETS, SAYING: "The more QE we see, the more buying there is of both short to medium bonds and perhaps further out on the curve the more depressed interest rates will become and the more paper will head into negative territory." He says investors may also see it as an alternative safehaven. (SOUNDBITE) DARREN SINDEN, MARKET RESEARCH AND CLIENT RELATIONS MANAGER AT ADMIRAL MARKETS, SAYING: "I suspect the truth is that Swiss bonds represent the least worst choice in the short term and even though you're actually paying out the Swiss government to lend them money, maybe that's a risk investors are willing to take in the absence of any other obvious European alternative." The country is not alone in having negative-yielding bonds, but selling them at auction with a negative yield is rare. A third of euro zone government debt now carry negative yields - and it's a trend that's accelerating after the European Central Bank launched a scheme to boost growth and inflation by buying 1 trillion euros of bonds.