Lux returns to capital markets, pays negative interest rates


Institutional investors snapped up Luxembourg’s AAA-rated bonds this week, paying an average -0.035% interest rate on two issuances. Library picture: Luxembourg’s finance ministry, April 2015. Photo credit: Benjamin Champenois/Maison Moderne 

The grand duchy’s public treasury has raised €2.5bn in just 460 minutes in its first bond offering of the year.

The government issued two tranches on Wednesday, the state treasury reported on 22 April.

Both were zero coupon offerings. The first, which raised €1.5bn, was a “5-year tranche due 28th April 2025 implying a negative yield of -0.185%”, the treasury stated. The second, worth €1bn, was a “10-year benchmark due 28th April 2030 reflecting a yield of +0.078%.”

That means some investors are paying Luxembourg to borrow their money.

The funds will be used to finance the government’s €8.8bn virus recovery package.

The government said the 5-year bonds were oversubscribed by about €2.2bn and the 10-year bonds by roughly €4.8bn, indicating strong investor demand for Luxembourg debt.

Yields on 10-year Germany, Switzerland and Japan bonds are likewise negative, per Bloomberg and Reuters figures posted on Thursday morning. France, the UK and US are all paying well under 1%.

The lead managers on the Luxembourg government bonds were BCEE, BGL BNP Paribas, Banque Internationale à Luxembourg, Deutsche Bank and Société Générale.