Negative-Yielding sovereign debt rise to $10.4 Trn

Negative-Yielding sovereign debt rise to $10.4 Trn in May. Higher amounts of Japanese and Italian sovereign securities with sub-zero yields were the biggest contributors to the monthly changes.

monetary policies sovereign DebtAccording to Fitch Ratings unconventional monetary policies, regulatory risk mitigation by banks and a flight to safety in global financial markets have all contributed to the ongoing rise in the amount of sovereign debt trading with a negative yield.

The total amount of fixed-rate sovereign debt trading at negative yields grew modestly to $10.4 trillion ($7.3 trillion long term and $3.1 trillion short term) as of May 31, up 5% from the $9.9 trillion that Fitch calculated as of April 25. There were no major shifts in the distribution of debt among the 14 countries with negative-yielding debt, with Japan still by far the largest source. Modest declines in Japanese, Italian, German and French sovereign yields during the month drove the $0.5 trillion increase in the total stock of negative-yielding debt.

Higher amounts of Japanese and Italian sovereign securities with sub-zero yields were the biggest contributors to the monthly changes. Yields on some Italian securities with maturities between 1.5 and 3 years flipped to negative from positive, and long-dated Japanese securities have gone further into negative territory since April 25. Core Eurozone yields were driven lower as weak inflation and manufacturing data, as well as the expansion of the ECB’s bond-buying program, continued to fuel demand for Eurozone sovereign debt.