Investors Regret Not Buying Most Negative-Yielding Bond Sold
Investors Regret Not Buying the Most Negative-Yielding Bond Ever
(Bloomberg) --
When Siemens AG sold a corporate bond at the most negative yield ever recorded, there was disappointment -- by those who were left out.
In Vienna, money manager Thomas Neuhold at Gutmann Kapitalanlage AG expressed regret that he didn’t have enough cash Tuesday in a busy day of corporate issuance to put in an order for the oversubscribed 3.5 billion euros ($3.9 billion) sale. Paying a company to lend to it for two to five years is preferable to accepting below-zero yields on German government debt for three decades, according to Neuhold.
“Compared to all other options, short-term corporates are the least bad option,” said the money manager at the 9 billion euro asset firm. “I still see much more reason to buy a negative-yielding short term Siemens than a 30-year bund.”
That sentiment is opening the door to an unprecedented wave of deals that allow companies to lock in below-zero yields in the primary market, in effect being paid to borrow. The stockpile of negative obligations across all markets just hit a record $17 trillion, and could swell further as markets gripped by recession fears drive government benchmarks to record lows.
More market participants may share Neuhold’s regret over Siemens’ bonds. Those who got in at issue reaped a quick paper profit as the notes are quoted above issue price on their second day of trading. The sale, in four maturities, included two-year notes yielding -0.315%, based on data compiled by Bloomberg. A five-year portion also featured a negative yield, while tranches due in 10 and 15 years paid positive yields. German debt due in 2050 yields -0.22%.
A fresh injection of European Central Bank stimulus in coming weeks is expected to push yields even further below zero, potentially spurring gains for traders of negative-yielding bonds so long as they don’t hold the debt to maturity.
JPMorgan Chase & Co. expects that it will soon be commonplace for European companies to stamp negative yields on new borrowings. Trading levels of companies with the same ratings as German industrial giant Siemens, single A, show they can basically borrow for free in euros, according to a Bloomberg Barclays index.
“Investors may try to push back on some of the initial deals, but within a few months they will be considered relatively normal structures,” JPMorgan strategists including Matthew Bailey wrote in an Aug. 23 note.
Companies have issued more than 6.5 billion euros of new bonds this year at negative yields, where they levied a cost on investors for the privilege of lending to them. Before this year, just four issues totaling 2.5 billion euros were sold with negative yields, according to Bloomberg data.
It’s a development that flummoxes Christian Hantel, a portfolio manager at Vontobel Asset Management AG, who’s spent the past 15 years analyzing and investing in corporate credit. He decided not to participate in the new issue from Siemens and doesn’t regret it.
“This shows how distorted the market is,” said Hantel, who’s looking for U.S.-dollar denominated alternatives.
But even the most resolute investors may soon grow to accept negative yields on new corporate debt, according to JPMorgan strategists. “Investors still have cash to deploy, and few other alternatives to buy,” they wrote.
To contact the reporter on this story: Tasos Vossos in London at tvossos@bloomberg.net
To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, ;Vivianne Rodrigues at vrodrigues3@bloomberg.net, Cecile Gutscher, Sid Verma
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