December 3, 2019 / 10:10 AM / 11 days ago

UPDATE 1-Pool of negative-yielding euro zone govt bonds shrinks in November

(Updates with chart, context, comment)

By Dhara Ranasinghe

LONDON, Dec 3 (Reuters) - The pool of negative-yielding euro zone bonds shrank further in November, data from electronic trading platform Tradeweb showed on Tuesday, but still accounts for almost two-thirds of the bloc’s government bond market.

The number of government and corporate bonds with sub-zero yields has ballooned this year against a backdrop of weak economic growth, central bank easing and heightened global risks be it from Brexit or a bitter trade war.

In the past two months, however, yields have pushed higher with trade war and Brexit fears easing and some signs in economic data that perhaps the worst may be over.

Euro zone government bonds trading on the Tradeweb platform with negative yields fell to 4.52 trillion euros ($5.01 trillion) as of the end of November, representing 57% of the total 8 trillion euro market.

That was down from 62% in October and as a share of the total market was at its lowest since June, Tradeweb data showed.

Germany’s benchmark 10-year Bund yield is trading near its highest levels in three weeks at around -0.29%, up 45 basis points from record lows hit in early September.

“We have seen yields increase substantially from before the last European Central Bank meeting so the data on a decline in negative yielding pool of debt is not surprising,” said Lyn Graham-Taylor, a fixed income strategist at Rabobank.

While the share of sub-zero bond yields has come down from record high levels reached in September, analysts said it would take a much brighter economic outlook and a shift in expectations for central bank policy to put a significant dent in the pool of negative-yielding assets globally.

When bonds yields are negative, investors are essentially paying governments or corporates to hold their debt - something they may be willing to do when economic conditions are weak, boosting demand for fixed income.

The pool of negative-yielding euro investment-grade corporate bonds fell to 873 billion euros, or 25% of the total market, from 30% in October, the electronic trading platform said.

“We are still bullish on bonds due to the longer term structural factors even though the events over the last couple of weeks such as China data, German elections and decent PMI figures in the euro zone have challenged that to some extent,” said Graham-Taylor.

Tradeweb is majority owned by Refinitiv. Thomson Reuters , the parent of Reuters News, holds a stake in Refinitiv.

Reporting by Dhara Ranasinghe; Additional reporting by Saikat Chatterjee Editing by Alison Williams and Andrew Cawthorne

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