Negative euro-area bond yield universe will expand

2015 ◽  
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Bond Yields ◽  
Government Bonds ◽  
Content Type ◽  
Bond Yield ◽  
The Us ◽  
Debt Issuance ◽  
Low Levels ◽  
Lift Off

Subject The euro-area government bonds outlook in the wake of the ECB's QE. Significance Strong demand among investors is pushing down yields on both government and corporate debt to unprecedentedly low levels, creating a rapidly expanding universe of negative bond yields. According to Royal Bank of Scotland (RBS), approximately one-third of euro-area government bonds now trade with a negative yield, including more than 50% of German, French, Dutch and Austrian public debt. Of the ECB's 60 billion euros (65 billion dollars) of monthly bond purchases, about 40 billion euros are estimated to involve government bonds, exceeding net government debt issuance across the euro-area. Therefore, yields are likely to fall further in the short term. Impacts Strong demand for 'safe haven' assets is compressing yields on government and corporate bonds, with negative rates on many securities. About one-third of euro-area sovereign debt is currently trading with a negative yield. The ECB's bond purchases and a relative scarcity in debt issuance will contribute to lower euro-area bond yields further. Persistent fears about growth and inflation will also contribute to lower yields. Negative yields will exacerbate the mispricing of risk, as investors bring forward their expectations regarding the US rates lift-off.

Euro-area bond sell-off will be a technical correction

2015 ◽  
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Government Bonds ◽  
Content Type ◽  
Bear Market ◽  
The Past ◽  
Us Economy ◽  
The Us ◽  
Technical Factors ◽  
Global Growth

Subject Reasons behind the current bond sell-off. Significance The sharp fall in the prices of government bonds, which has wiped 450 billion dollars off the value of sovereign debt over the past month, is attributable to crowded positioning by investors. It is unlikely to be the start of a 'reflation trade' stemming from a sudden improvement in the prospects for global growth and inflation. While there is debate about whether the sell-off in longer-dated government debt since mid-April amounts to the start of a bond bear market, the modest recovery in the euro-area and the renewed weakness of the US economy suggest technical factors are at work. Impacts The two main consensus trades (long European equities and government bonds and short the euro) are being unwound. The euro-area government bond sell-off is probably a 'buy the rumour, sell the news' trade after the ECB's QE announcement. The sell-off in long-dated government bonds is not spreading to corporate debt and to EM currencies.

Negative bond yields will fuel global equity rally

2016 ◽  
Keyword(s):  
Stock Market ◽  
Sovereign Debt ◽  
Asset Prices ◽  
Central Banks ◽  
Oil Price ◽  
Bond Yields ◽  
Fiscal Stimulus ◽  
Government Bonds ◽  
Content Type ◽  
Risk Appetite

Significance The gains in global equities stem from the expanding universe of negative-yielding government bonds, which now account for nearly a third of the stock of global sovereign debt. This is pushing yield-hungry investors into riskier assets, despite concerns about the sustainability of a stock market rally with weak fundamental underpinnings and central banks' ultra-loose policies driving asset prices. Impacts Sterling will remain under pressure because of the BoE's aggressive monetary easing, both conventional and unconventional. The recent oil price rebound will support equity valuations and risk appetite. Fiscal stimulus will benefit stocks in the construction and defence sectors.

US rates may rise but economic risks are rising faster

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Euro Area ◽  
Sovereign Debt ◽  
Emerging Market ◽  
Content Type ◽  
Political Risks ◽  
Bond Yield ◽  
Treasury Bond ◽  
The Face ◽  
Equity Index

Subject Global equity market trends. Significance The four main US stock market indices began March at record highs, including the benchmark S&P 500 index at 2,400. Driven by expectations of stimulative and pro-business policies under the new US administration, equity markets are flying in the face of signals from the Federal Reserve (Fed) that interest rates will rise three times this year. The probability of a hike at the Fed’s March 14-15 meeting has risen above 80% on growing price pressures and stronger economic data, buoyed by hawkish comments from several Fed governors, including those who were previously dovish. Impacts Despite the post-election US bond market sell-off, around one-third of the stock of euro-area sovereign debt remains negative yielding. The gap between the two-year US Treasury bond yield and its German equivalent has widened to a record, a sign of rising monetary divergence. The euro lost 2% against the dollar in February as political risks escalated in the euro-area, centred around the French election. The emerging market MSCI equity index is 8.6% up this year, after losing 4.5% from November 9 to end-2016, a sign of higher confidence.

SNB move will accentuate bond-equity divergence

2015 ◽  
Keyword(s):  
Euro Area ◽  
Yield Curve ◽  
Equity Markets ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Bond Yields ◽  
Content Type ◽  
Sovereign Bond ◽  
Advanced Economies ◽  
The Us

Significance The move mainly aims to pre-empt the widely anticipated launch of a sovereign quantitative easing (QE) programme by the ECB on January 22. However, it will accentuate divergences between bond and equity markets. Sovereign bond yields for most advanced economies are falling to new lows and are increasingly negative at the shorter end of the yield curve, because of deflation fears and lacklustre growth outlooks. Yet equity markets are hovering near record highs, buoyed by the US recovery and expectations of further monetary stimulus in the euro-area. Impacts Bond markets will be driven by deflation fears, while equity markets, especially US stocks, will be buoyed by Goldilocks-type conditions. Market expectations that the ECB will launch a sovereign QE programme will make bond yields fall further. Bond yields will be suppressed by investor scepticism about the ECB's ability to reflate the euro-area economy.

Amid many unknowns, EM assets will remain strained

2017 ◽  
Keyword(s):  
Emerging Market ◽  
Treasury Bonds ◽  
Government Bonds ◽  
Content Type ◽  
Bond Yield ◽  
The Us ◽  
Equity Funds ◽  
Treasury Bond ◽  
Mexican Peso ◽  
Bureau Of Labor Statistics

Subject Emerging markets under strain from dollar rally. Significance The US Bureau of Labor Statistics reported on January 6 that average hourly earnings grew at the fastest pace since 2009 in December -- a further fillip to the ‘trumpflation trade’ that has gripped financial markets since the victory of Donald Trump in the US presidential election. Expectations of further Fed rate increases have driven the dollar index and the ten-year Treasury bond yield higher, straining emerging market (EM) assets. EM mutual equity funds have suffered a wave of uninterrupted outflows since Trump’s victory. The Mexican peso and the Turkish lira have plumbed record lows against the dollar. Impacts Many EMs are preparing to sell dollar-denominated debt in anticipation of higher borrowing costs, including Argentina, Brazil and Nigeria. Speculative bets against US Treasury bonds have risen to a record high amid expectations of higher US inflation and further rate hikes. The stock of negative-yielding government bonds stands at 10.8 trillion dollars, fuelling demand for higher-yielding securities. In April, the US Treasury’s next Foreign Exchange Report could label China a currency manipulator though the criteria would need to change.

scholarly journals Volatility of yields of government bonds among GIIPS countries during the sovereign debt crisis in the euro area

Equilibrium ◽  
2016 ◽  
Vol 11 (1) ◽  
pp. 61 ◽  
Author(s):  
Tomas Heryan ◽  
Jan Ziegelbauer
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Global Financial Crisis ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Bond Yields ◽  
Government Bonds ◽  
Yield Spreads ◽  
Crisis Period ◽  
The Global Financial Crisis

The aim of the paper is to estimate, how the volatility of yields of the Greek bonds affects yields’ volatilities of bonds in selected European countries during the period of the sovereign debt crisis in the euro area. We obtained data for 10-year bonds in a weekly frequency from January 2006 till the end of December 2014. To make a comparison of pre-crisis period, we firstly investigate a bond yields’ volatility before 15th September 2008, when U.S. Leman Brothers bankrupted and the global financial crisis had been reflected in full. However, the period of the global financial crisis could also negatively affect the development of government bonds. Therefore, the period after Leman Brothers’ bankruptcy has been excluded and our crisis period starts after 23rd April 2010, when Greece asked the IMF for financial help and the sovereign debt crisis had been reflected in full. Volatility models GARCH (1,1), IGARCH (1,1) and TARCH (1,1) were used as an estimation method. To examine the risk premium of all GIIPS economies (Greece, Ireland, Italy, Portugal and Spain), we also compared the whole investigation with the developments of each spread against the yields of German government bonds. Our results clearly proved not only big differences between pre-crisis and crisis period, but also differences in output with the bond yield spreads. It was concluded that  there has been a higher impact of the Greek bond yields, as well as yield spreads volatility in 2010 and 2011, while it is on the lower level in pre-crisis period.

Low global volatility is hiding credit risks

2017 ◽  
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
The United States ◽  
Bond Yields ◽  
Fiscal Stimulus ◽  
Content Type ◽  
Election Result ◽  
Credit Risks ◽  
The Uk ◽  
Equity Index

Subject Downward pressure on bond yields. Significance Government bond yields rose in late 2016 as a result of higher inflation and expectations of US fiscal stimulus. However, although GDP growth is picking up in the euro-area, the United States and Japan, inflation pressures remain subdued and US fiscal plans have been delayed. Combined with falling political risk in the euro-area, this has pushed yields down and the global stock of negative-yielding sovereign debt is rising again. Moreover, ultra-accommodative monetary policies continue to supress yields, distorting asset prices and contributing to the mispricing of credit risk. Impacts China’s attempts to crack down on financial leverage is seen as a bigger risk by Bank of America Merrill Lynch than a euro-area break-up. Despite the uncertainty of the UK election result, markets have been calm and the S&P 500 equity index hit a new intraday high on June 9. The loss of momentum behind reflation trading has led the dollar index to fall by 5% this year and it will remain under pressure. US technology shares fell sharply on June 9, raising concerns that their surge this year leaves them overvalued and at risk of a correction.

ECB will decide Central Europe’s turn from rate rises

2019 ◽  
Keyword(s):  
Euro Area ◽  
Emerging Market ◽  
Government Bond ◽  
Bond Yields ◽  
Content Type ◽  
Car Industry ◽  
Bond Yield ◽  
Inflation Rates ◽  
Equity Funds ◽  
China’S Economy

Significance Pressure is mounting on the ECB to justify its withdrawal of monetary stimulus, following a sharp fall in German industrial activity in November that has increased the risk of Europe’s largest economy slipping into recession in the final quarter of 2018. The downturn across the euro-area, which is dragging down inflation rates and government bond yields, is starting to dampen growth in Central Europe. Impacts The euro-area economy’s outlook has dimmed, with Germany’s ten-year government bond yield plumbing its lowest level since April 2017. The open Hungarian and Czech economies are most at risk from a euro-area slowdown, since the weakness is concentrated in the car industry. However, sentiment towards emerging market bond and equity funds has improved despite a global growth scare centred around China’s economy.

Balkan banks will raise Greek contagion fears

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Banking Sector ◽  
Spillover Effects ◽  
Government Bond ◽  
Bond Yields ◽  
Content Type ◽  
The Us ◽  
South Eastern Europe ◽  
Bank Funding ◽  
Low Levels

Significance The loan let Greece make a scheduled payment to the ECB and settle arrears to the IMF. It is part of the agreement in principle with Greece's international lenders for a third package of financial assistance that has eased market fears about an imminent Greek exit from the euro-area ('Grexit'). Yet concerns about the solvency of the country's banking sector and Greece's membership of the single currency persist. In Emerging Europe, the spillover effects from a possible Grexit have diminished significantly since 2012, but the channels of contagion are strongest in the economies of South-Eastern Europe (SEE). Impacts The ECB's full-blown QE programme will help keep CEE government bond yields at extremely low levels across the region. The severe financial and economic crisis in many CEE states in 2008 has shown up the dangers of excessive reliance on parent bank funding. This is forcing local banks to rely more on domestic sources of financing. The biggest threat to sentiment towards Emerging Europe is another 'taper tantrum' when the US Fed raises interest rates later this year.

Measuring redenomination risks in the Euro area – evidence from survey data

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jens Klose
Keyword(s):  
Survey Data ◽  
Monetary Union ◽  
Euro Area ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Yield Spreads ◽  
Content Type ◽  
Sovereign Bond ◽  
Distributed Lag ◽  
Bond Yield

Purpose This paper aims to introduce a new indicator to measure redenomination risks in Euro area countries. The measure is based on survey data. The influence of this indicator in determining sovereign bond yield spreads is estimated. Design/methodology/approach An autoregressive distributed lag approach is used to estimate the effects of redenomination risks on sovereign bond yields. Additional control variables are added. Findings The results for 10 European Economic and Monetary Union (EMU) countries in the period June 2012 to May 2019 show that the risk of depreciation is almost abandoned for most Euro area countries, i.e. the former crisis countries Ireland and Portugal. If anything an appreciation may occur for some countries once they leave the EMU. The only countries facing depreciation problems once leaving the monetary union are Italy and to some extent Spain. Originality/value With this new indicator, the literature on sovereign bond determination and i.e. on redenomination risks is expanded by an additional approach. Moreover, this study is one of few also looking at the period after the most severe tensions of the sovereign debt crisis in the Euro area in 2012.

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