Brian Chappatta, Columnist

As German Bund Yields Head to Zero, They Still Beat U.S. Treasuries

Currency hedging costs help explain the return of rock-bottom interest rates.

February 8, 2019 at 5:26 PM UTC

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

Germany and the U.S. both need more bond buyers.
Photographer: Ralf Hirschberger/AFP/Getty Images

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Government bond yields are tumbling across the globe. In Japan, the 10-year yield is minus 0.03 percent, the second-lowest level in the past two years. In Germany, the 10-year bund yield fell to 0.08 percent, the lowest since October 2016. Should panic about recession in the European Union reach a fever pitch, it seems only a matter of time before it dips below zero.

That would only add to the amount of negative-yielding debt outstanding globally. That pile reached $8.9 trillion this week, the most since December 2017, Bloomberg Barclays data show. With that in mind, now’s as good a time as any for a friendly reminder: No, 10-year Treasuries are not a better option for many bond buyers in those regions, even with a nominal yield of 2.63 percent.