Back in April of 2015, we warned that the biggest risk facing the ECB is running out of eligible securities which the central bank can monetize. Draghi’s recent launch of the CSPP, in which the ECB has been buying not only investment grade but also junk bonds, is an indirect confirmation of that. A direct one comes courtesy of a Bloomberg calculation according to which following a seventh straight week of gains in German bunds, the yields on securities of all maturities has plunged to unprecedented lows, which has left about $801 billion of debt out of the statutory reach of the European Central Bank.
As noted earlier, there is now $13 trillion of global negative-yielding debt. That compares with $11 trillion before the Brexit vote. The surge in sovereign debt since Britain’s vote to exit the European Union last month has pushed yields on about 70% of the securities in the $1.1-trillion Bloomberg Germany Sovereign Bond Index below the ECB’s -0.4% deposit rate, making them ineligible for the institution’s quantitative-easing program. For the euro area as a whole, the total rises to almost $2 trillion. Continue reading