The size of global negative-yield bonds has ballooned to a new record, suggesting investor demand for safe-haven assets is as strong as that for riskier ones.
The market value of the Bloomberg Barclays Global Negative Yield Bond Index rose to a record high of $18.04 trillion on Thursday, the data show.
About $1 trillion of bonds turned negative this week, meaning 27 percent of the world’s investment-grade bonds now yield less than zero. But that figure is still below the 30 percent peak reached last year as governments and corporations have issued large amounts of bonds this year in response to the impact of the new crown epidemic.
While optimism about the global economic recovery next year has triggered an influx of investors into riskier assets such as stocks and corporate bonds, continued monetary support from central banks and concerns about the continued spread of the epidemic have maintained investor interest in less risky sovereign bonds.
On Thursday, the European Central Bank’s announcement that it would expand the size of its asset purchase program by 500 billion euros to support the eurozone’s economic recovery boosted bond bulls’ sentiment. Meanwhile, auction yields on both Australian short-term Treasuries and Spanish 10-year bonds fell below zero for the first time.
Among them, Australian investors snapped up a total of $1.1 billion in negative-yielding bonds. Some analysts said that the sale of debt assets at negative yields may be caused by a sharp spike in the exchange rate of the Australian dollar, leading to a strong recovery in investor demand.
However, analysts believe that the emergence of negative-yielding bonds does not mean that the Australian Federal Reserve will soon bring interest rates down to negative values. Andrew Ticehurst, an analyst at Nomura Securities, noted.
“This strong wave of negative yield bond buying is coming more from overseas, with investors clearly being driven by the current extremely low cost of foreign exchange hedging.”
Data show that the Australian dollar surged above a near two-year high of 0.75 against the U.S. dollar on Thursday, as investor confidence in Australia’s economic outlook is gradually restored.
In the euro zone, the European Central Bank President Lagarde said that the progress of the additional emergency bond purchase program will depend on the development of the economic situation, the ECB may also not all achieve the expanded bond purchase program.
According to Lagarde, if the new situation shows that the ECB needs to maintain favorable financing conditions to help counter the threat of inflation, the bank may consider readjusting the relevant bond purchase policy.
However, at present, the eurozone sovereign bonds have been deep in the quagmire of negative yields, this situation is difficult to change in a short time, I am afraid.
Among them, Germany, the Netherlands and Finland, the three major economic powers of the overall yield curve in the last month has fallen below zero, most of the countries in southern Europe bond yields are also running in the negative range.
According to Gilles Moec, chief analyst at Axa Investment Managers, the key to getting eurozone sovereign bonds out of negative yields lies in economic data.
“What the market is betting on is that the ECB will maintain ultra-loose monetary policy for some time, which is actually a sign of a lack of confidence in economic data.”
Investors should be reminded that: as the UK-EU trade talks are not going well, the market is heating up against the Bank of England’s rate cut expectations. Any sign of the BoE cutting rates below 0% could push the 5-year UK government bond yield below 0%.
If such a scenario does occur, Greece will be the only country in Europe to maintain a positive yield on its government bonds.
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