Flood of negative interest rates by ECB

Since the launch of the ECB's stimulus programme a year ago, the number of European government bonds with negative yields has exploded. More than 40% of all debt in circulation already has negative interest rates, up from around 20% in January 2015 and less than 5% a year earlier.

Long-term government bonds of countries such as Germany, the Netherlands and France no longer yield anything, but the short-term debt securities of the so-called 'PIIGS' countries now also have negative interest rates. That was unimaginable five years ago, when the yield on 10-year bonds from countries such as Spain, Portugal and Italy rose above 7%.

Negative interest rates on more than 40% of European government bonds

(Source: Bank of America Merrill Lynch, return: Holger Zschaepitz)

Negative interest rates

The flight of assets to safe havens has put downward pressure on both long-term and short-term interest rates in recent years. That natural effect was provided by two developments in the Eurozone. On the one hand, countries had to cut spending and reduce their deficits, which meant that fewer new bonds came onto the market. On the other hand, the ECB created extra demand by buying €60 billion of government bonds every month.

All these factors combined led to the explosive growth in the number of government bonds with negative interest rates. As long as the factors mentioned above remain in place, a rise in interest rates is almost unthinkable.

Source: Market update