Half of Euro-Area Bond Yields Below Zero as Investors Recall ’08

  • Bonds signal ‘very nasty’ times ahead: Smith & Williamson
  • German, French and Dutch 10-year yields reach record lows

Demand for safety since Britain voted to leave the European Union has dragged yields on more than half the euro-area’s sovereign bonds to less than zero as investors prioritize the return of some of their money over earning income.

Yields on German 10-year bonds reached a new low at less than minus 0.2 percent while those on French, and Dutch securities also fell to records. From Italy’s banking crisis to stress in U.K. property funds, there are more and more echoes of the financial crisis in 2008.

“It’s starting to feel like 2008,” said John Anderson, a London-based portfolio manager at Smith & Williamson Investment Management. “Something’s got to give. Government bond yields are telling you something very nasty is about to happen. I’m risk off at the moment, erring on the side of” government bonds, he said.

Political risk is also not far from the surface. Spanish Prime Minister Mariano Rajoy failed to secure a majority in last month’s election, held three days after the Brexit vote. His Italian counterpart, Matteo Renzi, faces a referendum this year, having said he would quit if voters rejected his plan to overhaul the political system.

More than half of securities in the $6.39 trillion Bloomberg Eurozone Sovereign Bond Index have negative yields, and about $1.9 trillion are ineligible for purchase under the European Central Bank’s quantitative-easing program after yields fell below the deposit rate, currently at minus 0.4 percent. Negative yields mean investors who buy the debt and hold it until it matures will get back less than what they paid.

Benchmark German 10-year bund yields were little changed at minus 0.18 percent as of 4:18 p.m. London time, having earlier reached a record-low minus 0.205 percent. Yields had dropped six basis points, or 0.06 percentage point, in the previous two days. The price of the 0.5 percent security due in February 2026 was at 106.56 percent of face value.

German 30-year bond yields reached a record-low 0.292 percent.

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