Le German bonds continue to be a "safe haven" for those looking for financial instruments that guarantee security and reliability, even discounting returns - in real terms - often negative.
In fact, Bunds offer such low interest rates that they are no longer able to protect capital from inflation, and for this very reason some auctions have recently gone deserted: security is welcome, but not at this price. In particularly turbulent times, however, even ridiculously low rates are forgiven by investors fleeing uncertainty.
The latest example is from this morning: an emission of Bobl at 5 years (Bundesobligationen) which raked in the market just over 4 billion euros at an average rate of 0,56% (the previous auction had closed at 0,80%) with a total demand of 5,8 billion.
A safe investment which, with inflation in the Eurozone equal to Present in several = 2,6% (April figure), involves a loss of purchasing power equal to Present in several = 2,1%.
But how do i credit default swap (insurance contracts that protect against default risk and consequently measure the risk perceived by investors on a bond) on German bonds?
The success of the recent auctions would lead us to hypothesize that, compared to a country still on the razor's edge like Italy, the cost of Berlin's CDS tends to decrease. It is not so: on the contrary, a strange dynamic is emerging on the unregulated markets of insurance policies: the cost of CDS on Teutonic bonds is growing.
But there's more: in the last month the price of German policies has not only increased, but has grown even more than its Italian counterpart. How is it possible? One could think of a paradox, since – in theory – whoever buys a CDS already owns the bond to which the credit default swap is "attached". If this were always true, it would not make sense to buy a bond - considering it reliable - and at the same time insure yourself with a financial instrument that indicates a growing risk on the security it protects.
The explanation is that, on the "over the counter" markets of CDS, the protection tools come in most cases also purchased by investors who do not own the government bonds protected by the CDS themselves.
This gap allows the emergence of a purely speculative picture, which has two main explanations. In the German case, the first is that some may begin to consider Germany as a carriage in the European convoy: therefore, if the train derails, the German carriage also derails.
But there is another hypothesis, perhaps more realistic: some US hedge funds they could buy German CDs on unregulated markets for later sell them short, forfeiting succulent profits. Just a few days ago the tycoon John Paulson he claimed to have unleashed a sort of speculative war against Germany.
Paulson is infamous for involving US savers in the purchase of a security (the Abacus) of home loan securitizations, keeping them in the dark about his intentions to do short-selling the same stock in the future. The deal earned Goldman Sachs and Paulson & Co. several billion in profits, and billions in losses for clients.
In the past, short selling was one of the American tycoon's favorite pastimes. Who knows if he has regained his taste for it.
