Negative-yielding debt volume surges, entire German curve below zero

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The first full week in August has seen a major rally in global fixed income markets pushing yields in developed markets down to levels never seen before. The volume of negative-yielding debt around the world has now risen to above USD 15 trillion. German sovereign 30-year bonds have rallied to send yields across the whole of the curve to below 0% for the first time.

  • Longer end of Japanese curve still positive
  • US yield curve in the green throughout
  • Investor concerns include the growth outlook and inflation/deflation

The rally, ostensibly triggered by US President Trump’s racheting-up of the trade tensions with China on 01/08/2019, reflects concern among investors over disinflationary pressures, geopolitical fears and the perception that Europe is sliding into a structural economic slowdown similar to that afflicting Japan.

The graph below shows the value in billion US dollar of the Bloomberg Barclays Global Aggregate Negative-Yielding Debt index.

Exhibit 1: Volume of negative-yielding debt in multi-sector global debt index rises sharply (again)

Exhibit 1
Source: BNP Paribas Asset Management, Bloomberg; as of 08/08/2019

Exhibit 2 shows the yield curves for German, Japanese and US government bonds at the close of business on 08/08/2019. Only US government bonds continue to offer investors positive yields, although they are falling fast. This week, the yield on the 30-year US Treasury bond fell to 2.20%, approaching the all-time low of 2.09% set in mid-2016 after the UK referendum on Brexit. This drop reflects deep pessimism among investors about the outlook for economic growth and concerns over deflation.

Exhibit 2: German sovereign debt yields fell below 0% across the board for the first time; 10-year plus Japanese yields are barely positive; US yields are positive across the curve

Exhibit 2

Source: BNP Paribas Asset Management, Reuters; as of 08/08/2019

Also see: Chart of the week: Volume of negative-yielding debt rises sharply

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Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients.


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