Wednesday December 22, 2021
Almost six billion euros
Germany earns money from getting into debt
In times of a zero interest rate policy and penalties for storing excessive amounts of money in banks, German government bonds are more in demand than ever. The Federal Republic has a reputation for being a reliable payer. In return, investors even forego interest. The treasury is happy.
Thanks to negative interest rates, the federal government again earned billions in debt this year. When issuing federal securities to finance the budget, including special funds, “payments totaling around 5.855 billion euros were received,” according to a letter from State Secretary for Finance Florian Toncar to a request from Left Bundestag member Christian Görke. “Germany has many problems, but state financing is not one of them,” said Görke. “This year, too, the federal government earned billions in debt.”
Because of the high corona costs, the federal government borrowed the record amount of around 483 billion euros on the financial market in the year ending. That is around a fifth more than in the old record year 2020. The average return on federal securities issued was minus 0.56 percent, explained Toncar. Nevertheless, the auctions were oversubscribed 1.7 times. “Despite negative returns, German bonds go away like hotcakes,” said Görke. “The federal government could even have sold more bonds without any problems.” Negative yield means that the bond buyers do not receive interest, but rather pay a “fee”.
Negative returns in 2022 as well
Experts assume that the environment for the new Federal Finance Minister Christian Lindner will remain favorable. “The financing conditions for the federal government remain excellent,” said NordLB economist Bernd Kampen. “We expect negative returns in the coming year as well.” This is not least due to the fact that the European Central Bank (ECB) will not end its zero interest rate policy before 2023. If the pandemic is over and the economy improves again, yields could pick up from the second half of the year – especially those for bonds with long maturities. “But we don’t expect a dramatic increase,” said Kampen.
Anyone who does not invest heavily with negative interest rates is overexploiting German infrastructure, said Görke. In the coalition agreement of the traffic light parties there are projects, but no price tags. How much money should really flow into schools, rails and solar panels cannot be found in it. He also called for a reform of the debt brake. Minister Lindner is to replace them with a rule that allows borrowing in the amount of the investment.
For the coming year, the finance agency responsible for debt management plans to issue EUR 410 billion. The federal government is very popular with investors, as its creditworthiness is given the top rating of “AAA” by all major rating agencies and the repayment is therefore considered to be very secure. There is also a huge market for these papers to trade, which is why federal papers enjoy near-cash status for pension funds, asset managers and other investors. In addition, the ECB is acting on a large scale as a buyer of federal securities. This increases demand, which in turn depresses returns.