The European Central Bank’s imminent bond-buying plan has left $1.9 trillion of the euro region’s government securities with negative yields.
Germany sold five-year notes at an average yield of minus 0.08 percent on Wednesday, a euro-area record, meaning investors buying the securities will get less back than they paid when the debt matures in April 2020.
By the next day, German notes with a maturity out to seven years had sub-zero yields, while rates on seven other euro-area nations’ debt were also negative. While some bonds had such yields as far back as 2012, the phenomenon has gathered pace since the ECB’s decision to cut its deposit rate to below zero last year.
Even when investors extend maturities, and move away from the region’s core markets, returns are becoming increasingly meager. Ireland’s 10-year yield slid below 1 percent for the first time this week, Portugal’s dropped below 2 percent, while Spanish and Italian rates also tumbled to records.
“It is something that many would not have pictured a year ago,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki. “It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming. People are holding on to these bonds and so you don’t have many willing sellers.”
Eighty-eight of the 346 securities in the Bloomberg Eurozone Sovereign Bond Index have negative yields, data compiled by Bloomberg show. Euro-area bonds make up about 80 percent of the $2.35 trillion of negative-yielding assets in the Bloomberg Global Developed Sovereign Bond Index, the data show.
Germany’s seven-year yield declined three basis points, or 0.03 percentage point, this week to 0.019 percent as of 5 p.m. London on Friday. The rate reached minus 0.017 percent on Feb. 26, the lowest on record. The 2 percent note due in January 2022 rose 0.175, or 1.75 euros per 1,000-euro ($1,120) face amount, to 113.545. The nation’s 10-year rate fell four basis points from Feb. 20 to 0.33 percent and touched a record-low 0.283 percent on Thursday.
As part of the ECB’s 1.1 trillion-euro quantitative easing plan, the central bank will buy government bonds due between two- and 30-years, including those with negative yields, President Mario Draghi said in January. Policy makers may flesh out more details when they meet in Cyprus on March 5.
The ECB is trying to avert a deflationary spiral in a region that’s been hobbled by a sovereign debt crisis and two recessions since 2008. Investors have accepted having to pay euro-area governments to lend to them as the Frankfurt-based central bank lowered its deposit rate, the charge levied on lenders to park excess cash at the ECB overnight, to minus 0.2 percent in September.
The region’s bonds were further boosted this week as euro-area finance chiefs approved an extension of financial aid for Greece. The nation’s three-year yields, which reached 21.91 percent on Feb. 10, the highest since Greece restructured its debt in 2012, fell 224 basis points this week, to 14.39 percent.