This last week, the yield on a 2-year Irish Government bond turned negative, garnering a rate of -0.007%. That means that if you want to loan the Irish government some of your money, you have to pay for the privilege of doing so. Negative interest rates are not exactly new, but in the case of Ireland it’s particularly bizarre. Just three years ago, amid a potential default crisis, the same bonds were yielding 23%.
What changed? The short answer is no one knows. Shiela Kinsella, an Economics Professor at the University of Limerick, was exasperated. “The market is still in an irrational stage. It’s telling me that markets are lumping the same countries in again, and it’s just proof that nothing is ever learnt.”
Why did this happen? Investors in the Eurozone still can’t find anything to invest in as the European Central Bank (ECB) started a weak bond-buying program to goose investment. It’s a last ditch attempt to goose the economy and produce much needed jobs. But all it has created so far is a Bizarro World in finance.