Credit Investors Reach for Long-Term Notes as ECB Crushes Yields

Credit investors are turning to the longest-dated bonds, cutting yields on the securities to record lows, as the European Central Bank’s efforts to stimulate economic growth force down market rates.

The average yield on bonds in Bank of America Merrill Lynch’s 10+ Year Euro Corporate index, which includes banks, fell six basis points to 1.88 percent, down from almost 5.5 percent at the end of 2011.

It’s going to get harder for bond investors to make money after the ECB pledged yesterday to buy as much as 1.1 trillion euros ($1.3 trillion) of assets. Yields on corporate bonds due in one-to-three years collapsed to a record 0.55 percent, Bank of America Merrill Lynch data show.

“The ECB is trying to push people to take more risk and buying longer bonds is one way investors can do that,” said Gary Jenkins, chief credit strategist at L&G Capital in London. “That will drain assets from the system so, given the lack of liquidity in corporate bonds, people are grabbing what they can now.”

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