Fitch: Neg Yielding Sov Debt Down but Investors Remain Pressured

NEW YORK--(BUSINESS WIRE)-- The global total of negative yielding sovereign debt declined to $10.4 trillion as of Nov. 1, down from $10.9 trillion on Sept. 12, according to Fitch Ratings. The recent rise in Eurozone bond yields and modest dollar appreciation since September have sent the total stock to its lowest level since the end of May.

While the outstanding amount of negative yielding sovereign debt declined in recent months, the persistence of low and negative yielding debt globally will continue to take its toll on investors, particularly buy-and-hold investors such as insurance companies.

As older, higher coupon bonds mature, income-oriented bond investors are forced to buy newer bonds that are being reissued with dramatically lower coupons. For example, a German sovereign bond with 30 years to original maturity recently matured on Sept. 20 with a coupon of 5.625%. That same bond issued on Nov. 1 would have a coupon of about 0.80% based on currently available yields. For investors that have not realized gains on bond prices, income generated by their portfolios will continue to diminish in an ultra-low rate environment.

For other bond investors, price sensitivity to changes in interest rates is exacerbated by the increasing stock of low-coupon debt. All else being equal, duration, and thus price sensitivity, is greater for lower coupon bonds.

European sovereign bond yields have ticked higher in recent weeks, driving the majority of the decrease in the negative yielding debt total. In aggregate, the stock outstanding in Europe declined by about $450 billion in the time frame. Italy in particular has seen a sharp decrease in outstanding negative yielding debt amid political concerns surrounding Prime Minister Renzi's December referendum. Debt trading with sub-zero yields fell to $340 billion outstanding from $480 billion outstanding since Sept. 12 in Italy.

Japan still has the most negative yielding debt outstanding of any country with $6.9 trillion. Long-term yields have been mostly stable in Japan since September, following the Bank of Japan's decision to target a near-zero percent yield for its 10-year government bond.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Related Research

Negative-Yielding Sovereign Debt (Global Total Falls Back to $10.9 Trillion in September)

https://www.fitchratings.com/site/re/887694

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