Euro-area bonds may offer NYTM for decades, or forever

Subject NYTM -- Japan and the euro-area. Significance ECB Executive Board member Sabine Lautenschlager announced on September 26 that she would step down before her term expires. She opposes further monetary loosening, as do the heads of the Bundesbank and the Dutch central bank. When Christine Lagarde becomes ECB president next month, four of the top six ECB officials will have changed in the last seven months, exacerbating concerns about negative interest rate policy (NIRP) and bonds with negative yields to maturity (NYTM). Impacts 'Hedging’ a ten-year Bund by selling euros for dollars on a rolling scheme not matching the bond’s maturity will not always create YTM. Institutional investors in Japan and the euro-area will hold cash rather than near-zero coupon bonds as interest rates will not rise fast. Rate and YTM differentials between the euro-area and US markets could widen further as the new ECB bond-buying programme gets under way.