On July 18, 2016 the Canadian Imperial Bank of Commerce (CIBC) became the first Canadian bank to sell bonds with a negative yield. Worse than that the CIBC had no problem selling the debt even though it’s guaranteed to lose money if held to maturity. The bank raised almost $1.8 billion via a bond sale of six-year debt that yields minus 0.009 per cent. That means anyone who bought the debt paid $100.054 for the right to get $100 back from the bank in 2022. Despite the seemingly poor return, the bank had no trouble selling the euro-denominated bonds on Monday. The bond sale was two times oversubscribed, which means there were people willing to buy twice as much debt as there was debt available for sale.
As we previously expounded earlier this spring in our post: Money: No Cash Value
NIRP (negative interest rate policy) for all intent and purposes appears to be so wrong, for so many reasons. It really makes us feel thankful (for now) for that whopping 0.5% interest we are being awarded on our “high interest” savings account.
As a collection agency with offices in Edmonton, Calgary and the GTA we are watching with keen interest the unfolding of events with respect to these phenomenon and their impact (or lack thereof) on Canadian credit markets.