By Emese Bartha and Chiara Albanese
Europe's plunging borrowing costs marked two new milestones on
Wednesday, with Switzerland becoming the first country ever to
issue 10-year debt that gives investors a yield under 0%, and
Mexico lining up a rare deal to borrow euros that it will repay a
century from now.
Bond prices across Europe have rocketed this year in response to
the European Central Bank's massive stimulus package, delivering
bumper returns for existing bondholders and cheap deals for
borrowers, but crushing yields for new investors.
Several European countries inside and outside the eurozone have
sold government debt with up to five years of maturity at negative
yields, which means investors effectively pay for the privilege of
buying it. But no other country has previously stretched this out
as long as 10 years.
Meanwhile, Mexico is thought to be the first borrower from
outside the euro area to issue 100-year euro debt.
"Given the prospect of sustained monetary policy easing by the
ECB for the foreseeable future, issuing long-term paper denominated
in euros makes sense from a borrower's perspective. We expect this
trend to strengthen," said Salman Ahmed, global fixed-income
strategist at Lombard Odier Investment Managers.
Switzerland sold a total of 377.9 million Swiss francs (about
$391 million) of bonds maturing in 2025 and 2049. On the 10-year
slice, the yield was -0.055%, compared with 0.011% on its most
recent similar bond two months ago.
In the post-issuance secondary market, Swiss bonds maturing up
to 11 years in the future already trade with yields under 0%. But
such low yields at the initial point of sale "illustrate well the
world we live in," said Jan von Gerich, chief strategist at Nordea,
referring to collapsing yields on debt amid widespread stimulus
from central banks around the world, a trend enhanced by the ECB's
latest bond-market foray.
In January, Switzerland's central bank scrapped its upper limit
on the value of the franc and cut deposit rates to -0.75%. Swiss
bonds are likely to remain attractive to investors as long as
yields stand above that level.
"The combination of deflationary fears and aggressive
central-bank action has caused investors to accept the reality of
negative-yield bonds," said Jeffrey Sica, chief investment officer
of U.S.-based Circle Squared Alternative Investments. An auction
with a negative yield "signals a lack of confidence from investors
that the economy will be growing in the short term."
Mexico's deal, which is set to wrap up later Wednesday, is
expected to give investors a yield of about 4.5%. The country has
previously sold century bonds in sterling and in dollars.
"With euro rates in negative terrain, Mexican sovereign risk
looks pretty attractive, particularly in these terms," said Marco
Oviedo, chief economist for Mexico at Barclays. He expects a
healthy demand from European investors.
Borrowers from around the world, including big names such as
Berkshire Hathaway Inc and Coca-Cola Co, have been drawn to the
allure of cheap funding in euros this year. Local borrowers have
also feasted on the cheapest ever deals. French utility GDF Suez SA
issued bonds in March with no guaranteed regular payments to
investors at all.
Write to Emese Bartha at emese.bartha@wsj.com and Chiara
Albanese at chiara.albanese@wsj.com
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