Chart of the Week: From Negative Sentiment to (Gulp) Negative Bond Yields
Welcome to an era of negative bond yields in the eurozone’s “safe haven” nations.
Investors are on the hunt for safe havens for their cash – and bond yields are falling to such low levels that before long it seems likely that rather than earning even a meager amount on their holdings, some sovereign bonds will end up charging investors for the privilege. In other words: we’re heading rapidly toward an era of negative bond yields, as this year’s Chart of the Week indicates.
That’s certainly the case in Europe, where at the beginning of July the European Central Bank cut its deposit rate to zero from 0.25%. The goal was to persuade banks that use the ECB’s deposit facility to take their assets elsewhere – and specifically other asset classes, like stocks. The move backfired, however, as banks did pull out deposits, but only to purchase short-term government securities issued by Germany and other eurozone nations whose finances are believed to be stable.
As can be seen in the chart above, the ranks of these nations now seem to include France, which late last year was seeing its own interest rates climb. Now it appears that investors are placing it in the same camp as Germany, the Netherlands and Switzerland; safe havens all. Only a week ago, France sold €2 billion of six-month T-bills; investors settled for a slightly negative yield of -0.006%, compared to the 0.096% they accepted in exchange for their cash the prior week.
Meanwhile, it seems, the bifurcation between the eurozone’s “have” and “have not” nations just seems to widen further, based on the yields investors are demanding for entrusting money to either Italy or Spain.