European negative-yielding govt bond pool shrinks below 9% of market
The pool of negative-yielding euro zone government bonds fell to a new low in July as the European Central Bank hiked its key rate to 0%, data from electronic bond trading platform Tradeweb on Monday showed.
The pool of negative-yielding euro zone government bonds fell to a new low in July as the European Central Bank hiked its key rate to 0%, data from electronic bond trading platform Tradeweb on Monday showed. The overall pool of debt with a sub-zero interest rate has continued to shrink, even as government bond yields across the euro area receded in July on the back of increased concerns about recession risks.
Last month saw a larger-than-expected half-point interest rate hike from the ECB, which ended an eight-year experiment with negative rates, and more tightening is expected in September as the central bank tries to tame inflation. Just 752 billion euros ($771 billion) of euro zone government bonds carried negative yields by the end of July, Tradeweb said, down from 809 billion euros in June.
That means negative-yielding bonds made up roughly 8.7% of a total market worth 8.6 trillion euros on Tradeweb's platform, versus around 9.7% at end-June. The end-July number was the lowest since at least 2016, when Tradeweb first started compiling the data for Reuters.
Europe's negative-yielding debt pool made up as much as three quarters of the sovereign debt market in late 2020, as the fallout of the COVID-19 pandemic dealt a blow to the economy and kept interest rates near record lows. But it has shrunk sharply this year as markets braced for higher ECB interest rates to contain inflation.
Although bond yields across the euro area fell back during July as signs of slowing economic activity surfaced, they remain in positive territory and much higher than early 2022 levels. Germany's 10-year Bund yield for instance fell 54 basis points in July, its biggest monthly drop since 2010, but at 0.84%, it is comfortably above 0%. So are shorter-dated bond yields, with two-year German yields at 0.3% .
Analysts believe the era of negative rates is now over, with containing inflation the ECB's priority. Latest data on Friday showed euro area inflation at a new record high in July of 8.9%, and the ECB is widely expected to lift rates again when it next meets in September.
While all benchmark euro zone government bonds now carry positive yields, Tradeweb's data also includes inflation-linked bonds, some of which still offer negative yields. In corporate bond markets, negative-yielding euro investment grade bonds totalled slightly more than 20 billion euros in July, or 0.54% of the total market, versus 37 billion in June.
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