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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