The average yield on euro-denominated investment-grade corporate debt has nearly halved to 0.77% from 1.41% at the start of the year, according to Barclays’ Euro-Aggregate Corporates bond index, which has an average maturity of just under six years.
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Ten-year yields in Germany – the euro zone’s benchmark issuer – have been trading below zero per cent in the secondary market for the past three weeks and hit a record low last week at around minus 0.20 per cent.
A negative yield would mean investors buying the 10-year bund and holding it to maturity would receive less back than they paid at the outset. “There’s talk that people are adding to their Treasury positions, and we are continuing to see foreign buying on any type of pullbacks”, said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.
Bunds remained higher on the day following sharp losses yesterday, but were off their best level with resistance close to 167.00 with the market 10-year yield at -0.11%.
“It would be the icing on the cake for investors who have come to accept that you don’t get money back on your investment”, said David Schnautz, an interest rate strategist at Commerzbank, referring to a negative yield at the German auction. Meanwhile, Germany and other European countries have previously sold off shorter-term debt at negative yields.
The German central bank or Bundesbank announced that it sold more than 4.0 billion euros ($4.5 billion) of a new 10-year bond with a yield of minus 0.05 percent. Bonds had weakened earlier this week as risk appetite surged on expectations of new stimulus from Japan, helping to send USA shares to record highs and reducing demand for safe haven bonds.
Monetary policymakers are contemplating stimuli as heightened political uncertainty following the U.K.’s Brexit vote collides with low developed-world growth rates and worries about a slowdown in China.
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He expects the interest rate to stay negative over the next six to 12 months.
