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Greece becomes latest to join the negative-yield bond club

By Philip Smith

Move may signal good times ahead for Europe’s financial outcast

Greece becomes latest to join the negative-yield bond club

Government bonds have been producing negative yields across the Eurozone and beyond for some time. It’s not just short-term bonds. Last month (September), 30-year German and Dutch borrowing costs fell below 0%, Reuters reported. According to Bloomberg, more than 80% of Germany’s federal and regional government bonds offer negative yields while “almost the entire Danish government market is negative”.

Now, the Financial Times reports, Greece is joining the fray. Once the financial outcast of the Eurozone, its government is now charging investors for lending it cash. These are three-month bonds but the Greeks are also offering ten-year bonds at a low 1.5%. So, do negative yields indicate an economic turnaround?

After the 2007-08 global crash, the Greeks suffered the longest recession of any advanced economy in modern times. It needed bailout loans from the International Monetary Fund, Eurogroup and the European Central Bank, which came with strict conditions.

Now Greece appears buoyant. It is forecasting economic growth of at least 2.8% in 2020, Reuters reports. Unemployment is expected to drop to 15.6% next year from 17.4% in 2019, while public debt is expected to fall to 167.8% of GDP from an expected 173.3% of GDP this year.

Why do investors buy bonds that guarantee a loss if held to maturity? They could be seen as a safe haven in times of economic turmoil – providing reliability and liquidity – or investors may think prices will rise before they reach maturity. Either way, if the Greeks are offering – and selling – such bonds, that must indicate a turning point for its beleaguered economy.

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