bonds credit europe

Some ‘Mind-Boggling’ Numbers From The World Of Negative-Yielding Debt

"It was monetary mania last week…"

Last week, the global stock of negative-yielding debt topped $13 trillion following a mini-“whatever it takes” moment from Mario Draghi, a dovish surprise from the Fed and cautious assessments of the outlook from the BoE and the BoJ.

It was, to quote BofA’s Barnaby Martin, a “dove-fest”.

Read more: Mario Draghi Delivers A Mini-‘Whatever It Takes’ In Sintra

Between a renewed commitment to accommodation from central banks and the deteriorating outlook for growth and inflation upon which that renewed commitment is predicated, developed market bond yields plunged. 10-year yields in Australia and New Zealand touched record lows, French yields hit zero and it won’t be long before it’s all sub-zero in Germany.

Obviously, that’s a bullish technical for credit, as everyone is driven back out the risk curve and back down the quality ladder in an increasingly desperate hunt for yield.

In a note dated Monday, BofA’s Martin marvels at the sheer scope of it all. To wit:

Front end yields collapsed (the rate cut effect), curves flattened (forward guidance effect), and peripheral spreads and corporate bonds rallied strongly (a QE effect). But not to be outdone by Draghi, Powell and Kuroda injected their own doses of dovishness on the yield curve last week, leaving global government bond yields standing at a paltry 85bp now. It was monetary mania last week…

That it was, and as BofA reiterates, the read-through is that the thirst for yield will grow inexorably stronger.

With safe havens now effectively taxed, money that would have been content to loiter in the risk- free world will find its way to riskier assets. As Martin puts it, “‘tourism’ across financial markets will run rife.” Clearly, corporate credit will benefit from those flows.

BofA proceeds to run through a set of “mind-boggling” numbers.

“Around 85% of German government debt now yields below zero (and ~60% of German quasi-sovereign debt is negative too)”, Matin writes, underscoring what you see in the bottom pane above. Meanwhile, nearly 80% of French covered bonds are negative-yielding, a figure which BofA points out is “up from around 30% at the start of March this year”. In Japan, 70% of sovereign bonds yield less than zero.


Finally, to drive the point home, Martin notes that “just under 50% of Spanish government debt is now also negative yielding [and] despite political tensions, Italy has seen its first govt. bond go negative last week”. Here are a couple of additional visuals that help underscore the point (do take a second to digest the visual in the left pane – it’s pretty remarkable):


What else is there to say?

The bottom line is that you either take risk, or you get taxed. Not much of a choice, really.



6 comments on “Some ‘Mind-Boggling’ Numbers From The World Of Negative-Yielding Debt

  1. Who are the ones loaning out the money and negative interest rates? Help me understand why a lender would PAY someone to use their money? Why wouldnt someone put it into A dividend paying stock if nothing else? You would likely get a positive return there

    • well, remember, we’re not talking about average Joe investor trying to decide where to put $500 here.

      • plus, if you know central banks are going to perpetuate it, you can essentially front-run an expected continuation of the bond rally

        • Then the logical conclusion to your statement is that negative rates will perpetuate themselves forever.
          Or until the inevitable government default , which will result in a a volcanic disaster for those who have chased yields to stupid numbers

      • Aren´t we, I have negative interest rates on my savings account (-40 bp) in Denmark, and my Swedish bank are trying making me pay as well, thus of course the negative rates effects average where average Joe / me makes his/mine investments. Damned if you do, damned if you don’t…

  2. I think these couple of week’s reaction of gold is caused by Draghi being extra dovish.Japan’s still the same and the Fed’s got one foot in the dovish waters.Here’s a couple of questions:How long does it take to blow this negative yield bubble out?What may happen if we get some sort of inflation with these negative yielding debts?You can protect yourself against these by betting on gold,but i dont know what to say about the exchange rates

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