The select club of negative yield countries contains Germany, Switzerland, France, Holland, Finland, Austria, Slovakia, Sweden and Denmark. Now Spain has joined, with the return on six-month letters now situated at -0.002%.
The Treasury has never enjoyed such low levels as are currently being witnessed, which effectively means it is being financed for free. The official interest rate is at a historic low of 0.05% since September 2014. Most importantly, the programme of quantitative easing by the ECB is now fully operation and appears on course to meet its aim of buying €60 billion euro a month in public and private debt.
A principle beneficiary of the negative interest rates will be the public accounts: the fall in rates will allow for significant savings from what had been laid out in the budget. In 2014, the savings accrued were around €5 billion, and this year’s figure may well exceed that amount.
One negative point is the huge public debt that has been accumulated by the public sector. The Government is paying less interest, but the deficit increases every year because the volume of public debt continues to grow. At the end of 2014, that debt exceeded €1 trillion-97.6%-of Gross Domestic Product and it could be that this year the figure exceeds 100% of GDP.
Before the crisis, public debt represented just 40% of GDP. Experts have been calling for the Government to implement a credible plan that reduces not just the public deficit, but also the public debt.
[N.E 10-year Swiss bonds were today placed in negative yield territory for the first time ever.]