Disappearing Negative Interest Rate Bonds... German 10-Year Bonds Near Positive After Two and a Half Years

German 10-Year Government Bond Yield Trend

[Asia Economy Reporter Park Byung-hee] As prices rise, negative-yield bonds are disappearing in Europe, the Wall Street Journal (WSJ) reported on the 3rd (local time).

While demand is recovering due to the lifting of COVID-19 restrictions, supply chain disruptions persist. In this imbalanced situation between supply and demand, the recent surge in natural gas prices is fueling inflation. Expectations of central banks raising benchmark interest rates due to inflation are reflected in rising bond yields.

The yield on Germany's 10-year bonds rose to -0.07% this week, approaching positive territory. Germany's 10-year bond yields have remained negative since April 2019. During the early stages of the COVID-19 pandemic in March last year, yields fell to around -0.7%.

10-year government bond yields in France, Ireland, the Netherlands, and Switzerland have already turned positive or risen to near zero.

The market size of bonds with negative yields included in the Bloomberg Barclays index began to shrink from $18 trillion in December last year and has now decreased to $10.7 trillion.

As prices rise, Norway and Poland among European countries have already raised their benchmark interest rates. The UK is also likely to raise its benchmark rate at the monetary policy meeting on the 4th.

On the other hand, Christine Lagarde, President of the European Central Bank (ECB), still holds a negative stance on raising benchmark interest rates. President Lagarde said on the day, "Inflation, which rose temporarily due to the pandemic, will eventually fall," and expressed uncertainty about whether the conditions for raising benchmark rates next year will be met.

However, investors are ignoring President Lagarde's remarks and selling government bonds, causing bond yields to rise, WSJ explained.

David Zahn, bond investment strategist at Franklin Templeton, predicted that bond yields are likely to continue rising even if the ECB does not raise benchmark interest rates. This is because the ECB is likely to end its quantitative easing policy early next year regardless of whether it raises rates. The U.S. central bank, the Federal Reserve (Fed), officially announced tapering of asset purchases due to quantitative easing on the same day.

Zahn explained, "Tapering by the Fed and ECB means that major players are disappearing from the bond market."

This content was produced with the assistance of AI translation services.