May 4, 2016 / 1:30 PM / 4 years ago

European bonds with negative yields dip below 3 trillion euros

LONDON, May 4 (Reuters) - The value of euro-denominated government bonds in Europe with yields below zero has dipped below 3 trillion euros, potentially creating a wider pool of eligible bonds for the European Central Bank’s bond-buying programme.

The ECB has a number of criteria for its asset-purchase programme, aimed at boosting inflation in the euro area, which includes a ban on buying bonds yielding less than its deposit rate.

Data from trading platform Tradeweb showed 2.9 trillion euros ($3.3 trillion) of government bonds in Europe yielded less than zero at the end of April, suggesting investors were still prepared to pay for the privilege of lending to the most trusted borrowers.

That still counts as some 41 percent of the 7 trillion euro market and was down from just over 3 trillion euros two months ago.

Negative interest rates from the ECB and its 1.5 trillion euro asset purchase programme continue to put downward pressure on bond yields and on returns for depositors and investors across the euro zone.

The central bank’s plans meanwhile to add top-rated corporate bonds to its quantitative easing programme from June has helped drive more corporate debt yields into negative territory.

According to Tradeweb, more than 5 percent of the 2.8 trillion euro-denominated investment grade corporate bond market in Europe had yields below zero compared with almost 4 percent in early March.

It said that about 151 billion euros worth of investment grade corporate bonds had a negative bid yield at the end of April, up from about 105 billion euros in early March.

While the ECB has not decided how many corporate bonds it would buy every month, it has said it can buy bonds issued by companies that are based in the euro zone, have an investment grade rating and are not banks.

“Overall the pool of bonds with negative yields remains huge and is still unattractive for investors,” said David Schnautz, interest rate strategist at Commerzbank. (Reporting by Dhara Ranasinghe; Editing by Raissa Kasolowsky)

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