The European Central Bank’s first full quarter of quantitative easing hasn’t stopped the region’s government bonds from heading for their worst performance on record.
The rout started in April after the ECB’s purchases helped send yields on more than $2 trillion of euro-area sovereign debt below zero, sparking an investor backlash against such meager returns given the region’s improving economic outlook. ECB President Mario Draghi added fuel to that fire this month when he said markets must get used to periods of higher volatility. The latest turmoil in Greece further undermined bonds from Europe’s periphery, even as it revived some demand for the relative safety of German debt.
Euro-area sovereign securities handed investors a 5.7 percent loss this quarter through June 29, according to Bank of America Merrill Lynch’s Euro Government Index, which tracks data back to the end of 1985. That was led by a 16 percent decline in Greek securities, with German bonds dropping 4.7 percent and Spain’s 6.4 percent.
“German 10-year bund yields went down to five basis points in April at the same time the ECB was throwing 60 billion euros a month at the market,” said Mark Holman, chief executive officer at TwentyFour Asset Management in London, which oversees about $8 billion. “We’ve seen better growth prospects, better economic numbers. Is that consistent with five basis point yields? Absolutely not.”
The ECB settled about 194 billion euros of public bond purchases between the program’s start on March 9 and June 26, it said on Monday.