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Yields on $1.7tr euro-region bonds fall below zero


 European Central Bank

European Central Bank

As the European Central Bank wound down its asset purchases for the year, the amount of euro-region government bonds that yield less than zero was at about $1.68 trillion, indicating investors see the potential for further easing of monetary policy in 2016.

With QE acquisitions set to resume on Jan. 4, bonds of governments from Portugal to Germany will be supported again by the 1.5 trillion-euro programme, which is scheduled to keep running until at least March 2017.

Begun in March this year, the purchases continue to push an increasing number of securities off the table- meaning their yields are so low they’re ineligible for buying.

The total issued value of bonds that yield less than the ECB’s minus 0.3 per cent deposit rate, and are thus deemed ineligible for acquisition by the ECB, is about $616 billion of the $6.35 trillion Bloomberg Eurozone Sovereign Bond Index.

A slump in oil prices is supporting economists’ view that the ECB is unlikely to veer from its accommodative policy stance as it struggles to achieve its inflation goal of just under two per cent, fulfilling a principal aim of the asset-purchase programme.

So many sub-zero-yielding securities “indicate that there is a belief that there is no real inflationary pressures evident yet, and the ECB will remain ready to do more if required,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP.

German two-year note yields were at minus 0.337 per cent as of the 5 p.m. London close on December 23. The price of the zero per cent security due in December 2017 was 100.665 per cent of face value. The last time the yield was positive was in August 2014.

With oil languishing near an 11-year low and the region’s inflation a long way below the ECB’s goal, Callan said “crude oil is probably the leading indicator as regards to where ECB policy and where bond yields go in the start of 2016. That is what most of the markets are looking at the moment.”

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