Crisis fund efsf earns money by incurring debt

Crisis fund efsf earns money by incurring debt

Belgium also joined the group of countries that are getting minus yields on their short-term debt. The heibt investors pay on it, in order to be allowed to finance belgium’s state budget in the short term. Euro crisis countries like spain and italy, on the other hand, must continue to pay high interest rates.

The combination of a low interest rate policy and ample liquidity provided by the european central bank (ECB) is considered to be the reason for the strong demand for securities issued by sovereign debtors with strong credit ratings. It makes it difficult for banks and large investors to find places to park excess funds, thus printing yields. Spain and italy also recently obtained fresh funds more favorably – experts nevertheless continue to view the situation critically.

The EFSF achieved a negative yield of 0.0113 percent at the auction of a six-month money market paper, according to the deutsche bundesbank in frankfurt. In total, investors in the luxembourg special-purpose vehicle put up 1.49 billion euros. The EFSF finances the adjustment programs in the crisis countries under the bailout umbrella on behalf of the euro community.

Belgium had also previously borrowed money from investors at negative interest rates for short maturities. At an auction of money market paper with three-month maturities, the yield was minus 0.016 percent, the belgian debt agency reported. In total, belgium collected three billion euros at tuesday’s auction as planned. However, twelve-month paper also came under the hammer, with yields still slightly in positive territory at 0.04 percent.

The art of asking investors to pay in order to finance the national budget had already been achieved in france the week before. Germany and the netherlands have been able to do this for a long time. The market is so chafed by german paper that the federal government currently has to offer no interest for up to two years.

Experts see a close connection between the recent low interest rate records at money market auctions and the ECB’s most recent interest rate cut. The historically low level of interest rates and the zero interest rate for overnight deposits at the central bank are creating enormous investment pressure from the immense surplus liquidity in the financial sector.

The increasingly rare opportunities to generate positive returns are also creating a hunt for yield, from which the major crisis countries of italy and spain have recently also been able to benefit in the case of short-dated paper. On tuesday, for example, spain and last friday, italy collected fresh money from investors on much more favorable terms than last month. On tuesday, the spanish government raised 3.56 billion euros from the capital market in an auction of bonds with maturities of 12 and 18 months, as reported by the ministry of economy in madrid. Yields declined significantly compared to the previous auction in june, but still reached the second highest level since the beginning of the year.

Experts therefore warn that as long as access to long-term loans is more or less blocked due to the barely tolerable level of interest rates, the situation in the major crisis countries will remain critical. Italy, for example, has not placed any bonds with maturities longer than 15 years on the market for more than a year.

The exceptional state to which the ECB’s zero interest rate policy is leading can also be seen in the secondary markets, where outstanding government debt is traded. In the maturity range of up to two years, not only germany but also the netherlands, finland and austria are now enjoying negative returns. Meanwhile, the risk profile of spanish securities continues to rise.


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