Germany sold two-year government debt at a record low yield of minus 0.38 per cent on Wednesday, in a move reflecting expectations of further monetary easing for the eurozone next month.
The policy-sensitive two-year bond offers a coupon of zero, meaning investors in effect pay to own it to maturity. About 10 eurozone countries have two-year debt at negative yields, and investors expect the European Central Bank to cut the rate it pays on overnight deposits, which stands at minus 0.20 per cent, further into negative territory.
On Wednesday Portugal sold 12-month and six-month government debt at negative yields for the first time. Denmark sold DKr3.6bn of three-year debt at an average yield of minus 0.31 per cent and Sweden offered SKr15bn of three-month bills yielding minus 0.42 per cent.
Let's be clear what this means: one implication is that the savings glut of big business is being invested at negative interest rates. The managers of these companies are so bereft of ideas they will pay governments to take cash off their hands. If that isn't a definition of management failure I am not sure what is.
But what I also hear is that the demand for high quality collateral in some sectors is now so high because of Basel (in particular) that the price of government bonds does not matter: what is important is that there be enough of them.
In other words, people want more debt than governments are willing to supply. Which is quite astonishing, because the question that is then begged is why when this is the case and when people so obviously need the services that government can deliver that sufficient debt cannot be created by government running deficits?