On the 4th of July this year, the German government issued a bond with a 0% coupon with a maturity date of 7th October 2022. 

On its first day of trading this bond closed at a price of €100.78. Sharp-eyed readers will have spotted a potential flaw here. On day one an investor would have to pay €100.78 for a bond that pays no coupon each year between 2017 and 2022 and on the 7th October 2022 will repay you €100. This equates to a yield of -0.15%.

I suppose a 0% coupon makes filling in a tax return easier, but why would anyone do this?

Well in the Alice in Wonderland distortions of the European bond market, sometimes believing six impossible things before breakfast is exactly what you should do.

This bond touched a new high closing price yesterday of €101.86, equating to a yield of -0.36%.

An investor who bought on July 4 will have enjoyed a total return of 1.07% in a two month period. Also for a sterling-based investor, the euro has appreciated by around 5.8% against the pound since July 4. So a sterling investor who bought a negative yielding bond with a 0% coupon would have achieved a near 7% total return since early July.

The Mad Hatter invites everyone to tea.

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