This is your typical corporate bond.
This is your typical corporate bond on negative rates.*
Deutsche Bank Strategist Jim Reid has posited that it's only a matter of time before yields on corporate bonds sold by investment-grade European companies dip below zero in light of continued central bank easing and a sustained rally in the region's corporate paper.
"Our central view is that zero might be a temporary resistance point if government yields rally further but that at some point the dam will break and corporates will trade on a spread basis and go sub-zero," Reid wrote in a note published on Tuesday.
He added: "Obviously this all depends on whether a further deeper rally occurs. At the moment two-year bunds are at -0.47 percent and one- to three-year AA spreads at +58 basis points so we’re getting closer to testing the theory, especially for the tighter bonds in the index."
Such a development would be a remarkable turn of events for the asset class, and would likely provoke a not-insignificant amount of controversy as investors ponder the point of investing in a spread product with a sub-zero yield. It is not without precedent, however: Corporate yields in Switzerland previously turned negative to coincide with the country's pioneering work in the field of government bond yields below zero.
"Even the most bearish strategist might have laughed loudly at the thought of negative corporate bond yields even a couple of years back," concluded Reid. "All thoughts on this very welcome."
*Not an actual Deutsche Bank chart.