Investors are redoubling their appetite for debt, a behavior that is being supported by the commitment of central banks to keep their monetary policies unchanged and the emergence of new fears regarding the evolution of the pandemic and its impact on the economy.
In a scenario in which the new variants threaten to destroy the advances in the vaccination process and in which the voices that point to the possibility that the economic recovery has peaked are growing, investors increase their exposure to income fixed. This translates into a drop in yields and the consequent flattening of debt curves.
Although the trend is generalized, the German market is the best exponent with its ten-year bond, a benchmark for the euro area, at -0.5%, a minimum of five months ago. While debt maturing in 2031 falls below the deposit rate applied by the ECB and the old limit below which the institution did not buy debt, negative returns extend to 30-year securities.
The German bond maturing in 2051 stands at -0.047%, the minimum of last February, which means that all the debt of the locomotive in Europe is already trading negative. Gone are the -0.1% at which the 10-year debt was quoted and the 0.46% registered by the 30-year bonds in May.
The turn in recent sessions, as central banks have confirmed that zero rates will continue to prevail even for a long period of time, has caught many investors by surprise who expected the economic recovery and rising inflation to lift financing costs.
Peripheral public debt does not deviate from this trend with the Spanish 10-year bond at 0.2%, February lows, and the Italian two-year bonds below -0.5% for the first time in their history. Outside the euro zone, other references such as the Japanese bond maturing in 2031 stands at 0.003%, December lows, while the United States at the same term is trading at 1.2%, February levels and far from 1.74 % of March.
The flattening of the debt curves and the negative entry of new references is contributing to the increase in the volume of negative debt. Currently $ 16.5 trillion (€ 14 trillion) is trading at negative rates, the highest level in six months, but still some way from December’s record of $ 18 trillion (15.2 trillion). , month in which Spain charged for selling 10-year debt for the first time in its history.
The fall in yields in recent sessions is consistent with the increase in supply. Germany placed 3,273 million in five-year debt at -0.76% on Tuesday, an operation in which purchase orders exceeded 5,273 million. Yesterday it was Spain’s turn. In the first auction of August, the Treasury yesterday sold 5,089 million in bonds and obligations. The appetite and confidence of investors was felt in the demand, which reached 8,380 million, and allowed to lower the rates in the references to three, five and 10 years, as well as in the debt indexed to inflation.
As investors look back at fixed income, the ghosts of inflation are still hovering in the market. In June, the year-on-year rate in the US rose to 5.4%, the highest figure in 13 years. Despite this rise, in the last meeting the Federal Reserve reiterated that the current levels are transitory mainly caused by the base effect, bottlenecks in production chains and the rise of raw materials such as Brent, which up 21% in 2021.
The institution chaired by Jerome Powell has begun to prepare the ground for a reduction in debt purchases, an announcement that is expected at the September meeting. But it won’t be until December or early 2022 when tapering becomes effective. Experts believe that it is early to speak of inflation as a structural risk and consider that the rise in prices has peaked.