As signalled by Eurointelligence, the FT carries this story today about how Germany is creating new products to target retail investors for its sovereign debt.
As signalled by Eurointelligence, the FT carries this story today about how Germany is creating new products to target retail investors for its sovereign debt.
5 replies on “The Market for Government Debt”
Hmm, let’s see – an investment vehicle that enables retail customers quicker and easier access to sovereign bonds? Great! Now we can completely crowd out any private sector activity that might still be lingering in the fringes of the European economy! And then, when more cash-starved firms fold, we’ll have cheap borrowed government money on hand to bail them out!
And while we’re at it, let’s spread the high default risk of profligate borrowers like Berlin across the wider bund, so that we can artificially depress their borrowing costs and encourage them to continue to live beyond their means. After all, if America does it…
given that the last irish bond cleared with 55% irish participation it might be a good idea to follow this lead, bond investors in other countries are not flocking to buy our debt and yet there is enough money in the country already to clear more than required if it was invested in bonds, when deposit rates are dropping so much and with the yield curve expected to drop on the right hand side the higher margins on our AA+ debt might look attractive, we just need to get simple distribution so that everyday people can invest in them.
One issue with selling Irish government bonds to retail is tax . Unless the government changes DIRT, holders of Irish debt will pay at the marginal tax rate, instead of the DIRT rate. Given that the risk of deposits/ bank debt versus government debt is currently essentially the same, the after tax yield on governments looks poor.
@daniel would bond returns not be treated as investment income and thus at the marginal rate?
I didn’t see the connection between the Irish situation and the Germans selling off bonds to retail clients but I am glad I found this because Germany is planning to create a product where clients could save monthly amounts. Apparently, they are going to bundle up government bonds and bills with different maturity dates.
Evelyn Guzman
Debt Challenger