22
Aug

Germany sells a zero-percent 30-year bond for the first time

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Germany will auction a 30-year bond with a 0% interest rate for the first time on Wednesday.

The bond sale that took place at 10:30 a.m. London time will mean the German government will not make any interest payments to those buying the bond until it matures in August 2050.

Bondholders would usually receive both the face value back as well as interest payments over the assets lifetime. But a zero-coupon bondholder would only receive the face value back.

The sale of 2 billion euros of the long-term bond that was announced last week comes at a time when the yields of these fixed-income assets have hit record lows, with many moving into negative territory as investors look to shelter from market turbulence and capitalize on central bank easing.

A zero-coupon bond from the German government is an option for investors to park their money in a longer term safe-haven asset and lock their cash for a 30-year period amid global uncertainties.

In a challenging market environment, investors tend to move their investments from riskier assets into safe-havens like gold and government bonds, thereby bumping up demand and prices. Bond yields move inversely to prices, and hence have been turning negative.

A bond’s coupon rate is the rate of interest it pays annually, while its yield is the measure of return based on coupon and purchase price.

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