BRUSSELS: Investors revolting against negative yields in Europe wiped euro 142 billion ($160 billion) off the value of the region’s government bonds this week, heading for the biggest selloff since at least October 1993.
With Bill Gross and DoubleLine Capital’s Jeffrey Gundlach among investors saying its time to sell bunds, the value of European bonds dropped to euro 5.75 trillion Thursday, the least since March 4, Bank of America Merrill Lynch data show. Germany’s 10-year yields completed their biggest two-day climb since November 2011 as signs of euro-area inflation prompted traders to pare bets the European Central Bank’s quantitative easing will drive up prices on the continent’s benchmark debt.
Yields had gotten to levels where any investor who had discretion around where they want to put their money would not want to own these bonds as a long-term proposition,” said Peter Jolly, the Sydney-based head of market research at National Australia Bank Ltd, the nation’s largest lender by assets. “It was always unreasonable to my mind that, just because the ECB was buying bonds, that yields had to be jammed to the floor.”
German 10-year yields surged 20 basis points, or 0.2 percentage point, in two days to close at 0.37 per cent on Thursday. That’s up from an unprecedented 0.049 per cent reached April 17.
The ECB’s euro 1.1-trillion quantitative-easing programme gives cause to avoid the region’s government bonds, said Steven Wieting, global chief investment strategist in New York at Citigroup Inc’s private bank. Wieting said on April 29 the bank cut allocation to German bunds in favour of US Treasuries in the five- to seven-year range.
There is no reason to accept negative yields for the same reasons that institutional investors might,” said Wieting, whose funds hold a smaller amount of bunds than indexes recommend. Since his bank advises some of the world’s most affluent families, with assets that total $374 billion, Wieting isn’t required to hold easy-to-trade sovereign debt.
Private-wealth clients don’t need to follow that particular herd.”Wieting said the effect of quantitative easing in Europe can be seen by looking at the US experience of the past four years, when record stimulus boosted stocks and corporate bonds and made government bonds more expensive.
