One month ago, we reported that in addition to over a dozen “high yield” (we use the term very loosely) European issuers now sporting negative rates, Europe – thanks to the ECB’s insane monetary policy and trillions in negative yielding sovereign bonds – has become ground zero for subzero corporate debt as well, a third of all European investment grade bonds and a third of 1-2y European BB-rated (i.e. junk) bonds now yield less than zero.
What stands out in the chart above is that 2/3rds of AA-rated EUR bonds, over 1/3 of single As, over 1/5 of BBBs and nearly a tenth of BBs yielded less than zero as of mid-July (since then the number has only grown). Here is the shocking punchline: the higher-rated front end is essentially all under water and 33% of the €2.2tn market, or some €700bn of EUR IG corporate bonds, have a negative yield.
Since then things have escalated, as seen in the following chart which shows that as of this moment some $17 trillion in debt has a negative yield – an unprecedented amount.
The news flow didn’t help, with dismal economic data out of Germany and China, coupled with Beijing’s promise to retaliate against the new 10% tariffs imposed by the US, which hammered the US curve however, perhaps the most important news – certainly for rates and credit – was that ECB’s Rehn saying on Thursday the central bank needs to come out with an “impactful and significant” stimulus package at their next meeting on September 12th in order to overshoot market expectations. This was said to include a rate cut and substantial bond purchases. The immediate result was European rates leading the rally with 30-year bunds 8bps lower, the 100-year Austrian bond adding another 10pts to close above EUR 210, and 10-year Italian spreads came in 11bps.
That’s not the punchline.
What is, is that ahead of Thursday’s latest plunge in global rates, yields on the $27.8 trillion non-USD global investment grade bond market had declined to just 16bps…
… which means that, according to BofA calcuilations, the US share of global investment grade yields has climbed to 94%, and was set to become 100% in the coming days.
And some more shocking details: non-USD sovereign yields had dropped to just 2bps, meaning that any day now foreign sovereign debt may have no yield at all on average.
This means that corporate bonds are now the highest yielding Non-USD IG fixed income asset class at 75bps, followed by 33bps for Quasi & foreign Government while Securitized/Collateralized yield -14bps.
And now on top of that the ECB may soon begin to buy EUR denominated government and possibly corporate bonds.
And as central banks are about to lob a wall of new money into the global bond market, it naturally means even lower, more negative yields. The trigger will be lower interest rate volatility or simply the passage of time, as a lot of foreign investors are being charged (negative yields) for being underinvested.
Meanwhile, we wonder how long until Trump realizes that any investor who wishes to generate a positive yield is forced to invest in US assets, and how long after until Trump decides to imposes tariffs and taxes on said investments?