Stefan Kreuzkamp, chief investment officer at Deutsche Asset Management, has responded to the historic news of negative yields on German government debt as marking a shift into a new era in which a key benchmark used to value other assets has been undone.
“Ten-year German Bund yields are the measure of all things in finance. A minus in front of the interest rate is a symbolic manifestation of a world turning upside down. The evaporation of this reference distorts every single asset class,” he said.
“As we approached this negative interest rate scenario, there have been some winners and many losers. German savers are in the losing camp because their exposure to equities and real estate is below the average of other countries, while the share of savings accounts is above average.”
“A negative interest rate has one benefit: It forces Germans to reconsider their investment behavior.”
“Of course there is no actual right to receive a positive interest rate. However, a market economy depends on prices providing accurate signals. The QE programs rolled out by central banks have distorted the demand side to such an extent that it no longer gives a proper indication of the savings and investment environment in the economy.”
A negative yield on they benchmark 10-year Bund suggests investors are telling the German government that they are so concerned about other assets that they are prepared to pay to own German government debt rather than expect a positive return.