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CommentLeader

Why so negative?

It’s April, so that means it’s time to start talking about 10 year Bund yields turning negative again.

Remember last year? The rate looked almost certain to turn negative, before a remarkable sell-off reset the clock. It’s been ticking back down ever since.

It may make it this time — we’ve had more quantitative easing and at the time of writing the rate was not far off its all-time low.

But does it really matter if the yield turns negative?

Not that long ago, there were serious concerns about how the market would digest bond issues with a negative yield — but several negatively yielding new issues were sold with little incident. Is it not likely that this supposed nightmare will just look silly in the cold light of day?

True, more investors at the long end are interested in absolute yields than at the shorter end, where spread is more of a concern. But investors tend to move with the times and adjust their yield bogeys — while the 10 year part of the dollar curve is showing signs of opening up. As one avenue closes, another opens, perhaps.

But the biggest sign that ever lower yields are not much to worry about can be seen clearly from this week’s public sector euro issuance. Every deal was a blow-out — with the exception of a dual tranche tap from Portugal, the highest yielding SSA issuer of the week.

And while the blow-outs might be hard to repeat with 10 year Bund yields below zero, SSAs are perhaps more fully funded at this stage than ever before — so with none needing lots of jumbo deals this year, why the panic?

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