It’s not just about negative yielding sovereign debt anymore.
As a reminder, in its latest calculation in early June, Fitch estimated that the total amount of fixed-rate sovereign debt trading at negative yields grew to $10.4 trillion ($7.3 trillion long term and $3.1 trillion short term) as of May 31, up 5% from the $9.9 trillion that Fitch calculated as of April 25. Of this Japan still by far the largest source. Modest declines in Japanese, Italian, German and French sovereign yields during the month drove the $0.5 trillion increase in the total stock of negative-yielding debt.
Of course, now that the German 10Y Bund is borderline subzero (earlier today Germany auctioned off €3.3 BN at 0.01% in an uncovered auction), we expect the total sovereign notional amount to rise even higher and may surpass $11 trillion in negative yielding debt.
However, as Reuters writes this morning citing Tradeweb data, it’s now time to also look at corporate debt, because the amount of euro-denominated investment-grade corporate bonds with negative yields has tripled over the last six weeks, a move accelerated by their inclusion in the European Central Bank’s quantitative easing programme.
Specifically around 16%, or 440 billion euros, of the 2.8 trillion euros of these bonds now yield less than zero, up from around 5% at the start of May, according to Tradeweb data.
The culprit for this, as for the NIRP sovereign bond debt paradox, which as DB said is the “Simple Indicator Of A Broken Financial System” is, of course, the ECB which started buying corporate bonds last week, and in a single day bought 348 million euros, well exceeding market expectations.
We anticipate that global bond yields will turn even more negative in coming weeks, putting even more downward pressure on US corporate and sovereign yields, as the rest of the world rushes to the only remaining fixed income securities that offer a positive yield, in the process pushing the long end of the curve, and flattening the yield curve to the point where concerns about not just a global, but domestic recession, will force the Fed out of its hypnosis that all is still well.
via http://ift.tt/1VZ40yY Tyler Durden