Easy Money Drives Investors Into Stocks, Company Debt, BIS SaysAnchalee Worrachate
Monetary stimulus around the world is increasing the amount of government bonds with yields below zero, and that’s pushing investors into stocks and corporate debt, the Bank for International Settlements said.
European equity funds registered a cumulative inflow of almost $19 billion in the four weeks following the European Central Bank’s announcement in January that it would start buying government bonds, the BIS said in a report published today. That’s the most ever recorded for a similar period, it said. Flows into European high-yield corporate bond funds over the four weeks were the highest in a year, the BIS said.
“Largely unexpected, a wave of monetary policy easing over the past few months has taken center stage in global financial markets,” the Basel, Switzerland-based BIS said in the report. “Extraordinarily low interest rates and compressed risk premia once again pushed investors into riskier assets in their search for yield, sending prices of most asset classes toward record highs in early March.”
As central banks from China to Switzerland and Peru ease policy, bonds are trading with record-low rates. That’s particularly true for the euro area, where the ECB started sovereign debt purchases under its quantitative-easing program on March 9 with a goal of supporting growth and staving off deflation risks.
Approximately $2.4 trillion of global long-term government bonds were trading with negative yields at the end of February, of which more than $1.9 trillion was issued by euro-area nations, the BIS said in the report.
“Interest rates across the full maturity structure from two to 30 years dropped to record lows for several European countries,” the bank said. “The decline was most pronounced for the longest maturities. For some sovereigns, even issuance yields fell below zero.”
Yields in the U.S. also dropped, even as economists predicted the Federal Reserve would increase interest rates this year, suggesting investors were seeking higher returns than they could get in Europe, the BIS said. Bond funds domiciled in the U.S. were beneficiaries of inflows totaling $40 billion in the four weeks after the ECB’s announcement, it said.
The extra yield investors get by holding 10-year Treasuries instead of German bunds rose to 190 basis points on March 11, the most since 1989, according to closing-market data compiled by Bloomberg.