Economics: 20pc of ECB bonds yield zero
One in five company bonds bought by the European Central Bank since June yielded less than zero, the ECB said yesterday, raising questions about whether the bank risks fuelling a market bubble and will need to slow the pace of its purchases.
The ECB has bought €13.2bn worth of corporate debt since it added credit to its shopping list in June, with the aim of lowering borrowing costs for companies to stimulate hiring and investment.
Yields on the bonds it bought ranged from a negative 0.3pc to more than 3pc, with just over 20pc of the total yielding less than zero, the ECB said in its economic bulletin yesterday, publishing details of its purchases for the first time.
Negative-yielding debt bought by the ECB typically includes paper maturing over the next four years and issued by highly-rated or state-backed companies.
The drop in yields since the programme was announced in March indicated that the ECB had succeeded in lowering interest rates, at least for the large firms that finance themselves on the market.
But it also raised concerns that heavy buying by the central bank was pushing down yields too far, where they may soon no longer reflect the risk of a default by the issuer, weakening market discipline on borrowers and eventually contributing to a bubble.
Around a dozen bonds bought by the ECB, including some paper issued by state-owned German rail operator Deutsche Bahn, already yield less than the so-called risk-free rate, a market benchmark used to gauge the reward investors earn for taking on credit risk, according to UniCredit estimates. (Reuters)