Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. MARKETS
February 13, 2019 12:00 AM

Subzero German bond yields are back on radar as Europe fears recession

Bloomberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Bloomberg

    Yields on benchmark German government bonds are within touching distance of zero for the first time in almost three years as Europe's economic performance stalls and concerns over global trade spur investors toward havens.

    A no-deal Brexit, upheaval in Italian politics or a deteriorating labor market are among the risks that could turn bund yields negative, according to strategists.

    Subzero yields on 10-year bonds would mark a step back in time — to 2016 — when the European Central Bank was pumping money into the economy in an effort to reflate it. Now investors are seeking safety as they wonder if the institution has missed its chance to lift its deposit rates from a record-low -0.40% before the next global downturn strikes.

    "If the German consumer continues to retrench, then bund yields can go below zero," said John Taylor, a money manager at AllianceBernstein, which oversees $550 billion in assets. "I thought the end of quantitative easing would have had a bigger impact but it appears that the disappointing data has continued to push yields down further."

    German 10-year yields were at 0.12% Wednesday, having touched 0.08% last week. They fell below zero just ahead of the Brexit referendum in June 2016, before recovering from October that year. Yields on German tenors from short-term bills to bonds up to eight years are already negative.

    Industrial production data Wednesday added to fear of an economic contraction in the region, falling at the fastest pace since the financial crisis.

    Paying up

    Investors might choose to hold negative-yielding debt for a number of reasons. They may have to — by following a benchmark bond fund that contains a high proportion of safer assets such as bunds. They may think the securities will continue to rally, benefiting from the increase in price, or that the currency underlying the bond may climb to boost returns.

    The global stock of negative-yielding debt has surged to the highest level since 2017 as portfolio managers grow increasingly pessimistic about the state of the economy. It has climbed to $9 trillion from below $6 trillion in October, according to a Bloomberg Barclays index.

    "Recession risk is everywhere, but more imminent in Europe than the U.S.," Citigroup strategists led by Jamie Searle said in a note.

    Corporate club

    While average yields on short-dated euro corporate bonds remain well above zero, the rally in credit this year has increased the number of negative-yielding ones. There were only 13 in early January, yet this group has since ballooned to 64 members. It took until early 2017 for such bonds to follow comparable German government debt into negative territory — after the ECB began buying company debt in mid-2016.

    Morgan Stanley's "bull case" is for bund yields to touch zero if the labor market deteriorates or there's a reversal in positive wage data, leading investors to price in the probability of a deeper euro-area downturn. Negative yields are also not the base case for AllianceBernstein, with Mr. Taylor putting the risk at 25%.

    "Whilst the world looks deflationary today, it's nothing like the mindset in 2016," said James McAlevey, a portfolio manager at Aviva Investors. "The long duration grab for yield that permeated investors thinking and behavior back then was much more profound. So I don't think the flattening can be driven much beyond current levels."

    It is likely to take a political shock to force subzero yields, as it did with the Brexit vote. The continuing threat of a U.S. government shutdown, trade tensions with China, the U.K. crashing out of the European Union without a deal next month or populist victories in the region's parliamentary elections in May are all on the watch list for fund managers.

    "The possibility of 10-year nominal bund yields slipping into negative territory certainly cannot be discounted," said Rabobank strategists including Richard McGuire. "Given the slew of seemingly diverse but in actual fact populist-related news, one could argue that the odds are tilted in favor of such an outcome."

    Related Articles
    BofA: Managers expect economy to slow, but see chance of recession as slight
    Ray Dalio in step with Davos view that Fed has to rethink tightening
    Italy falls short on reforms, growth below 1% seen – IMF
    Aviva Investors adds real estate head for continental Europe
    Recommended for You
    SP500June2022_i.jpg
    Stock doomsayers vindicated in historic first half
    Market-ticker-red2022_i.jpg
    Stocks crushed as recession jitters jolt trading
    ONLINE_180509969_AR_0_TABEPHATBADK.jpg
    Goldman to pull out of most SPACs over threat of liability
    Strong Demand Drivers Underpin Private Credit
    Sponsored Content: Strong Demand Drivers Underpin Private Credit

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit