Negative-yielding euro zone debt pool lowest in almost a year

LONDON: The pool of negative-yielding euro zone government bonds shrank last month to the lowest in almost a year, in the latest sign that expectations for brighter economic prospects are taking hold among investors, Tradeweb data showed on Tuesday.

As much as 75% of euro zone sovereign bonds carried negative yields late last year, as the COVID-19 shock battered economic growth and boosted expectations that European Central Bank stimulus would remain in place for some time.

But the pool of bonds with negative yields has started to shrink. A bond with a negative yield essentially means an investor stands to lose money if they hold that bond to maturity.

Tradeweb said on Tuesday the market value of negative-yield euro-denominated government bonds traded on its platform stood at around 5.31 trillion euros ($6.38 trillion) as of the end of April, down from 5.92 trillion euros at the end of March.

The end-April negative-yield bonds accounted for almost 60% of a total market worth roughly 8.9 trillion euros, the lowest share since May last year.

"The rates market is waking up to the brighter growth outlook in the euro area, partly because (COVID) vaccines are picking up but also because the data has been better than expected," said ING senior rates strategist Antoine Bouvet.

"We think the Bund yield could cross 0% in the next quarter, although the pull of negative yields will continue for some time."

Germany's benchmark 10-year Bund yield was last trading at -0.23%. Last week it rose almost 6 basis points in its biggest weekly rise in more than two months.

The market value of British gilts on the Tradeweb platform with negative yields stood at around 629 billion pounds ($872.49 billion) at the end of April, or almost 26% of a total market worth around 2.45 trillion pounds.

This was down from 28% at end-March and marked the lowest share since Tradeweb starting collating the UK data for Reuters a year ago.

Nominal UK government bonds have moved out of negative-yield territory but the data still captures negative yields on inflation-linked bonds, the bond trading platform said.

Tradeweb data also showed a 1.3 trillion-euro pool of negative-yielding euro-denominated investment grade paper -- almost 37% of the total market at the end of April. This was broadly unchanged from the previous month.