Brexit Could Cause Exit from Bonds to Vault Cash
With Brexit, the Brits liberated themselves from the massive, overweening and despotic EU superstate. In its wake, investors may now begin to liberate their cash from government-issued debt by hoarding it in private vaults.
The volume of sovereign debt yielding a negative return swelled to over $10 trillion as a result of Brexit, with negative yields spreading to longer maturities and German 10-year bonds reaching -0.08%. Large firms are now seriously beginning to weigh the benefits and costs of hoarding cash in vaults. For example, Talanx AG, Germany's third largest insurer, has investments of 102 billion euros, with 90% in fixed-income assets such as government and corporate bonds. Immo Querner, its Chief Financial Officer, stated in a recent interview:
Storing physical cash as an alternative to paying negative interest rates does look increasingly attractive. The negative-yield terrain now spreads toward 10-year maturities. So at some point, one may also be talking about the incentives of storing cash for medium-term euro-assets.
One German reinsurer, Munich Re, has already announced that it will store at least 10 million euros in two currencies, in order to escape paying for its right to withdraw its money at short notice.