From FT Alphaville:
When the European Central Bank was building its new headquarters on the banks of Frankfurt’s Main river, stenciled on one of the hoardings around the construction site was an image of a suave Mario Draghi at the roulette table, chips stacked, with Angela Merkel the glamourpuss, at his side.The comments are interesting as well
The graffito, dubbed Casino Royale, symbolised an era when markets viewed the ECB’s urbane central bank chief as a James Bond-style figure who would bet the house and win the battle to save Europe from disaster. Fittingly, it was bought by a New York fund manager.
Ah, the halcyon days of 2013.
Cut to 2019, and the spectre of an ever-worsening global trade war is scaring the living daylights out of European investors to the extent that even Mr Draghi’s cunning is not enough. A flight to safety has sent debt prices rocketing, with north of $16tn of bonds now trading at negative yields (a big chunk of them euro-denominated) — meaning that, if investors end up holding them to maturity, they’re paying for the privilege of holding the (relatively) secure assets.
A more accurate artistic representation of the current mood in Europe, then, is ‘The K Foundation Burn A Million Quid’. A case-in-point came from Ms Merkel’s government today when it issued a 30-year bond with no coupon at all. Investors who stumped up the cash for the €2bn-worth of debt did so at a price that means they will in effect pay 11 basis points per year to Berlin to borrow the sum.
Of course, the actions of the central banks themselves have contributed to this cash burning exercise. Mr Draghi could, in the coming weeks, throw in his few remaining chips and promise to buy more government bonds under the ECB’s €2.6tn QE programme, which may make German sovereign debt even more expensive. And with the interest rate on deposits held at the eurozone’s central bank now minus 40 basis points — and set to sink lower still — 11 basis points doesn’t look all that bad a return....MUCH MORE
