In this case, Bloomberg says: It’s been more than two years since investors in the euro area bought bonds that paid more than zero. This is because the end of ultra-easy policy in the region is near.
The rate on government debt that has to be paid back in two years or more is positive across the entire currency bloc. Short-term yields have been pushed up by hawkish comments from European Central Bank officials. Traders now think that the European Central Bank will raise interest rates three quarter points in 2022, which would be the first time since 2012 that the ECB’s deposit rate would be above 0%.
“The monetary policy outlook could change very quickly because of the very different inflation outlook,” said Jan von Gerich, the chief strategist at Nordea NRDBY in Helsinki, who spoke to the BBC. There is already a lot that the market has already thought about. The direction has already been set. So I think that in the long run, yields will keep going up.
Symbolically, it’s a big deal for investors in Europe, where yields have been below zero for almost 10 years now. Negative interest rates happen when the price of a bond is more than the interest and principal it would pay if it was held to maturity. In light of the ECB’s policies of low deposit rates and bond buying, investors have been willing to accept this trade.
Many countries, especially those that don’t borrow money very often, don’t have a benchmark that closely matches a two-year horizon. For example: The Finnish two-year benchmark, which was the last one that went up, is linked to an 18-month bond.
