BlackRock Is an ‘Active’ Player in Europe’s Craze for Long Bonds

  • Company says non-German yield curves ‘steep, interesting’
  • Negative rates are no longer ‘an aberration’: Kames Capital

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BlackRock Inc., the world’s biggest money manager, says it snapped up some of the euro region’s long-dated government bond issues recently, attracted by their relatively high yields as well as signs of economic progress in the countries concerned.

“We’ve been active in some of those issues,” Michael Krautzberger, BlackRock’s London-based head of European fixed income, said on Bloomberg Television. “Some of the non-German yield curves in Europe are very, very steep. That’s what makes it potentially interesting.”

France announced Friday a 30-year bond auction that will take place on June 2, but the bulk of attention has been on the surge in half-century issuance. That same country led the way with a sale of 50-year bonds in April, with Belgium and Spain following suit and Italy’s debt agency saying earlier this month it was evaluating demand for a deal.

The issues receive support from pension funds and money managers seeking to match their liabilities and looking to profit in a market where shorter-term yields have been pushed near -- and in some cases below -- zero. Euro-area bonds maturing in at least two decades have returned almost 9.6 percent in 2016, almost three times the gain across the whole market.

For an explanation of why euro members are selling 50-year bonds, click here.

Yield Curve

This has pushed investors further out along the maturity spectrum -- and into so-called peripheral nations’ bonds rather than benchmark German debt. At 1.23 percentage points as of 4:35 p.m. London time, the extra yield buyers get for holding Spanish 30-year bonds instead of those maturing in 10 years is about a half percentage-point more than on a similar trade using German bunds.

“This era of negative interest rates and negative yields in bond markets has now become an accepted reality rather than just an aberration,” said Sandra Holdsworth, an Edinburgh-based money manager at Kames Capital Plc, which oversees $85 billion and has only bought the recent long bonds in the secondary market. “So we’re seeing more and more the yield curves flattening in the longer end as demand moves.”

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