Earlier today Germany's 10Y Bund crossed back into positive yield territory for the first time since Brexit, after touching as low as -0.20% earlier in the week...
... but that, oddly, does not mean that corporate bunds have to follow. In fact, as Goldman finds, negative corporate bond yields may turn out to be even stickier than their respective government treasuries. According to Goldman's Lotfi Karoui finds there is "more negative yielding EUR corporate bonds despite the rates selloff. The amount of corporate bonds with negative yields continues to grow in the EUR market despite the rate sell-off this week."
In fact, as of last night, using the bond constituents of the EUR iBoxx IG index, there is now a record high EUR216 billion in negative yielding corporate debt, representing 14% of the index. Within the broader EUR fixed income complex, a total of EUR4.1 trillion now trades in negative-yield territory representing 49% of the combined size of the sovereign, quasi-sovereign, covered and corporate iBoxx bond indices.
Zooming in on the corporate bond market, the chart below provides the top 10 capital structures with negative yielding bonds in the EUR iBoxx IG index. These capital structures have a total negative yielding bond outstanding of EUR61 billion, equivalent to 28% of the corporate sub-zero universe in the iBoxx index. Somewhat surprisingly, the mix of ratings and sectors is quite diverse. As the CSPP carries on, and barring a remake of the Bund tantrum experienced last year, this list will likely grow and thus fuel more rotation into the USD cash market.
In other words, we may soon see the unprecedented paradox where a German, French or Dutch corporate is trading with a negative yield, even as the matched-maturity sovereign bond is trading with a less negative yield, or is outright positive now that the ECB has shown it is more willing to accept negative corporate bond yields than bund yields.
