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China Issues Negative-Yielding Debt for the First Time
Central Banks, Asset Managers, and Others Invest in China’s Debt
China has raised about $4.7 billion in its first negative-yielding debt. Through the deal, which was euro-denominated, the Chinese government issued five-, 10-, and 15-year bonds. The five-year bonds were priced at negative 0.152%. The 10- and 15-year bonds were priced with positive yields of 0.318% and 0.664% respectively. Investors from Europe, Asia, and the US rushed to snap up this debt. These investors included central banks, sovereign wealth funds, and global asset managers. European investors were particularly interested in China’s five-year bonds because some other government debt in the region is even more negative. For example, yesterday the yield on five-year German bonds was negative 0.749%.
Negative-yielding bonds are somewhat rare, and tend to be purchased as safe-haven assets during times of economic uncertainty. When a bond has a negative yield an investor receives less money when the bond matures than what they paid for it initially.
China’s Economic Recovery
China’s economy grew 4.9% during the third quarter compared to the same period a year ago, moving closer to its pre-pandemic growth trajectory. China is the only major economy expected to see growth this year as the US, Europe, and other parts of the world continue to experience economic downturn, shutdowns, and extremely low interest rates.
Central banks in many parts of the world have slashed interest rates in hopes of spurring consumers and businesses to make purchases, hire workers, and stimulate the economy. These short-term interest rate cuts have weighed on longer-term yields. They have also caused investors to worry that governments are concerned about their countries’ economic health.
Bonds With Negative Yields Gain Popularity
Though it might seem like a strange choice for a lender to pay a borrower, some investors see negative-yield bonds as being safer than putting money into the stock market or other investments at the moment.
As of the end of October, there was $13.4 trillion invested in bonds with negative yields around the world. Over the summer, this number hit $17 trillion. Even if these negative yielding bonds do not generate coupons, they are in demand for their perceived safety and liquidity. Investors have the ability to swap them for cash quicker than some other assets at a fair price.
YouTube’s New Advertising Strategies
Pressing Play
YouTube (GOOGL) is making two significant changes to its advertising strategy. The video platform generated $5 billion in advertising revenue last quarter and the changes will likely boost its advertising profits even higher.
YouTube plans to place more ads on videos with small viewership numbers. However, it will not pay these creators—a decision which has sparked debate in the YouTuber community. The company is also rolling out audio ads to target consumers who use the platform to play music and podcasts.
Placing Ads on Content With Less Viewership
Starting yesterday, YouTube began placing ads on more videos made by content creators with small viewership numbers. Until now, most YouTube ads were placed on videos created by people participating in YouTube’s Partner Program. To participate in this program and be paid by YouTube, a content creator must have over 1,000 subscribers and have accrued more than 4,000 total hours of watch time over the past 12 months.
YouTube pays creators who are part of the Partner Program, but it does not pay smaller YouTubers, and it does not plan to do so even as it incorporates more ads into these videos by less high-profile YouTubers. This strategy will give YouTube more space for advertising at no cost to the company.
Launching Audio Ads
Many consumers use YouTube not just to watch video content but to play music and podcasts ambiently. Now the company is developing an advertising strategy for these situations in order to compete with Spotify (SPOT), Apple Music (AAPL), and other music streaming services for audio ad dollars.
The company is offering 15-second audio ads as well as opportunities for advertisers to target consumers based on what people are listening to. For example, a running shoe company could place ads on a workout playlist, or a toy company could place ads on a children’s music playlist.
Youtube is likely to see high traffic this winter as people look for ways to entertain themselves at home. This trend combined with the company’s new advertising strategies could give YouTube’s ad revenue a massive boost.
Friday Fundings: Heyday, SellerX, Afresh, and ZenBusiness
New Amazon-Focused Businesses Secure Funding
Two Amazon (AMZN)-focused businesses, Heyday and SellerX, raised fresh funding as demand for ecommerce continues to climb. Heyday, a company founded in August, buys and grows Amazon vendors. Third-party sellers generate about 60% of Amazon’s product sales—up from 30% in 2008. Heyday recently announced that it raised $175 million in a Series A round from investors including General Catalyst, Khosla Ventures, and others. The company has already purchased several brands across categories including furniture and beauty, and it anticipates generating $20 million in annualized revenue by the end of the year.
SellerX is also gaining ground in the ecommerce landscape through working with Amazon. The Berlin-based company’s strategy is to buy and consolidate small Amazon vendors and create economies of scale. The company recently secured $118 million in seed funding co-led by Cherry Ventures, Felix Capital, and TriplePoint Capital.
Fresh Funding for Afresh
Afresh, a company that creates software to help grocery stores keep track of their fresh produce, just raised $13 million in an extension of its Series A round. The company is now valued at $100 million.
Afresh leverages artificial intelligence and other resource planning technologies used by manufacturers to manage the flow of fresh produce in stores. The company’s strategies reduce food waste and help stores boost their revenue. Afresh reported that stores using its technology reduce food waste by 25%. It also raised its produce operating margins by 40% and its top line revenue growth by 2% to 4%. The pandemic and the subsequent ecommerce boom has led grocery stores to incorporate more technology into their operations. More and more stores are looking for solutions like the ones Afresh provides. With its new capital, Afresh will be better able to meet this rising demand.
ZenBusiness Helps Companies Adapt to a Changing Landscape
ZenBusiness is a company working to streamline the process of opening a business. The platform is a one-stop-shop for building a website, dealing with regulations, and more. It was founded by Ross Buhrdorf, the creator of HomeAway.
The Austin-based startup just raised $55 million in a Series B round led by Alex Lazarow of Cathay Innovation. ZenBusiness has provided services to over 80,000 small businesses. Its revenue has climbed over 100% this year. In a difficult job market, many people are starting their own businesses. Additionally, almost all businesses have had to adapt their strategies during the pandemic. Many have turned to ZenBusiness for help launching online operations or applying for licenses in multiple states because their employees are working remotely.
Not-So-Breaking News
- Nasdaq (NDAQ), the exchange operator, announced plans to acquire Verafin, an anti-financial crime software company, for $2.75 billion in cash. Nasdaq will provide Verafin’s services to the 250 banks, exchanges, and other organizations using its trade surveillance systems.
- Financial technology company Affirm, which gives consumers personalized loans at the point of sale, has filed to go public. The company joins DoorDash, Airbnb, and several other high-profile companies aiming to make their public debuts before the end of the year.
- Electronics retailer RadioShack is being acquired by Retail Ecommerce Ventures LLC, a Miami-based company which has bought up a number of struggling retail brands during the pandemic. Earlier this year the company purchased Pier 1 Imports’ ecommerce operations and helped Modell's Sporting Goods avoid bankruptcy.
- Shares of Sonos (SONO) hit a high note yesterday. The speaker-maker reported strong fiscal fourth-quarter earnings, which boosted its shares 30.6%. Consumers are spending more time listening to music, watching movies, and playing video games at home—and because of these habits, they are investing in new speakers.
- BuzzFeed is acquiring the news website HuffPost from Verizon Media (VZ) in an all-stock deal. HuffPost was once one of the most-visited news platforms on the internet, but it has lost traction due to the rise of news on social media. BuzzFeed will add HuffPost to its network of brands, including Tasty, and hopes to help it regain popularity through social media and other channels.
- Scam alert: the period between administrations is prime time for trickster marketers to try to ensnare people with programs that sound like something said on the campaign trail. To avoid these scams, check out the Biden Credit Card Debt Elimination Act–What You Need to Know.
Financial Planner Tip of the Day
"With both ETFs and mutual funds, investors must pay taxes on capital gains or dividends. However, ETFs tend to have a lower tax requirement. That means that ETFs may at times reduce distributed capital gains each year compared to a mutual fund."
Brian Walsh, CFP® at SoFi