Jan 9, 2012

Negative Yield on German Bills Indicates Maximum Level of Panic

Today's auction of German 6 month bills resulted in investors paying a negative yield (see Reuters article). Of course this does not make sense logically, but it has happened before - 3m US Treasury bills were in such high demand in the middle of the financial crisis in late 2008 that the winning bids were so high that yields went negative. In both cases investors are afraid to keep their money in the bank in case it goes bankrupt and would rather pay a fraction of a percentage point for the peace of mind. So either the Eurozone is coming to an end sometime very soon or the panic has reached such proportions that a bounce (in the Euro, as well as Eurozone sovereigns) is coming very soon. I would be tempted to bet on the latter.

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