In case you thought the European financial crisis was over, today’s auction of new German debt (PDF) garnered an average nominal yield of -0.0122 percent, the first time we’ve ever seen a negative nominal yield.
Note that a shoebox full of euro notes will earn you a zero percent nominal yield. Indeed, we’re accustomed to saying that nominal yields on government debt can’t go below zero precisely because of the shoebox factor. Something funny is happening.
UPDATE 1:52 PM – Joe Colucci observes on Twitter that for large institutions the storage costs of the “shoebox” option can get pretty high, especially if you don’t want to be robbed thus making slightly negative nominal yields preferable to pure shoeboxing.