Over half of euro zone government bond yields now below zero

LONDON: The pool of euro zone government bonds with sub-zero yields has surged again in June and now makes up more than half the total traded on the Tradeweb platform, reflecting heightened expectations for rate cuts.

European Central Bank President Mario Draghi on Tuesday hinted at new stimulus measures to boost inflation, sparking one of the biggest daily declines in euro zone government bond yields in at least a year.

French, Austrian and Finnish 10-year bond yields  all turned negative after Draghi's comments, although French yields have since nudged back above 0% .

The pool of euro zone government bonds with negative yields stood at 4.3 trillion euros out of a total of around 7.87 trillion euros in the Tradeweb system. Those numbers were as of the close of trade on June 18, the day of Draghi's speech, Tradeweb data showed on Thursday.

The share of bonds with sub-zero yields rose to 55% from around 49% at the end of May and was at its highest since August 2016, Tradeweb data showed.

"Draghi lowered the bar for additional stimulus, which means lower rates for longer, and that translates to yields turning negative or more negative," said Florian Hense, European economist at Berenberg in London.

"So, investors are bracing for stimulus being extended for a considerable period of time and that's globally not just in the euro zone."

The share of government bonds across the globe with yields below zero percent now stands at over $10 trillion, according to analyst estimates, and has shot up this year as a U.S.-China trade war fuels expectations for central bank policy easing.

The U.S. Federal Reserve on Wednesday said it was ready to battle growing economic risks with interest rate cuts beginning as early as next month, sending U.S. 10-year Treasury yields below 2% for the first time since November 2016.

In the euro zone, where the ECB already has a deposit rate at minus 0.40%, rate-cut speculation has only pushed bonds deeper into negative territory.

According to the Tradeweb data, almost 36% of euro zone government bonds on its system -- some 2.83 trillion euros worth -- now yield less than the ECB's deposit rate, the highest since at least 2016.

And the number of investment-grade euro-denominated corporate bonds with negative yields also jumped to stand at almost 1 trillion euros as of Tuesday's close.

This is up from just over 600 billion at the end of May and is a further sign of the relentless demand for fixed income that has pushing yields across a broad spectrum below zero percent.