BofA Looks At Europe's Record €2.6 Trillion In Negative-Yielding Debt, Is Shocked At What It Finds

Tyler Durden's picture

Yesterday we reported something that has never happened before in Europe: more than half of European sovereign issuers just saw the yield on their 2 Year Notes trade not only below zero, but hit never before seen negative yields.


As we further noted, this brought back memories of a post we did back in January when JPM was shocked to find that "in the aftermath of the ECB's NIRP policy, and subsequently QE, an unprecedented €1.4 trillion in European debt with a maturity of more than 1 year traded down to subzero, as in negative, yields."

Overnight BofA's Barnaby Martin decided to break down the most recent total and found something staggering: that €1.4 trillion number is a long gone memory and has been replaced with a "negative-yielding wonderland." To wit:

The easing bias of central banks in Europe over the last week has exacerbated the shortage of positive-yielding assets. Negative-yielding government debt in the Eurozone has jumped from €2tr to €2.6tr over the last week and now stands at a record high. The previous peak in negative-yielding government debt was €2.4tr, reached in April this year prior to the “Bundshock”. 

Visually Europe's monetary twilight zone looks as follows:

This was the be expected, as now every single activist central-bank is exporting deflation with a passion. The result is that negative yields have led to even more... deflation.

The problem of low inflation remains evident. Swiss inflation has collapsed into very negative territory, albeit precipitated by the SNB abandoning their currency peg earlier in the year. While Danish inflation has moved away from zero post big rate cuts in 2015, it is still hovering at just 0.5%. And Swedish inflation has been stuck around zero since early 2013.

So while everyone is gradually realizing that unconventional monetary policy using the bank reserve pathway simply does not work to increase broad inflation (however it does miracles for asset-price, i.e., stock market, inflation) which in a world drowning under $200 trillion in debt is the only goal, and will ultimately be replaced with the hyperinflationary endgame of simple monetary paradrops, also known as central-bank funded fiscal stimulus or "helicopter money", for now the hope is that doing more of the same which is clearly not working will finally work, and lead to the much desired jump in inflation.

Alas, it won't, because as we have stated for years, and where Bank of America finally "gets it", frontrunning central banks purchases of government bonds, which pushes yields to zero and in Europe's case, well below, is in itself the most deflationary signal possible.

Recall that the thinking behind NIRP was simple: to force people out of their savings and to invest their rapidly devaluing cash in either the stock market or the real economy. However, since as shown above, everyone is merely frontrunning the ECB's future purchases, yields continue sliding signalling a tsunami of deflation...

... which in turn makes the money in the bank even more valuable.

And this is where BofA admits something that, at least to its own conventional sensibilities, is quite amazing: NIRP is achieving the opposite of what it was meant to achieve.

The problem of low inflation remains evident. Swiss inflation has collapsed into very negative territory, albeit precipitated by the SNB abandoning their currency peg earlier in the year. While Danish inflation has moved away from zero post big rate cuts in 2015, it is still hovering at just 0.5%. And Swedish inflation has been stuck around zero since early 2013.

And the stunner:

Yet, household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.

The evidence:

By the way, "perversely" is the term economists use when reality not only does not comply with their models but does precisely the opposite of what was intended.

BofA concludes:

For now, negative rates as a policy tool remain a “work in progress”, judging by the current inflation levels across Europe. But the rise in household savings rates amid so much central bank support is paradoxical to us, and mimics what we highlighted in the credit market earlier this year. Companies in Europe are deleveraging, not releveraging, and are buying back bonds not stock.


Despite NIRP, therefore, “animal spirits” across companies and consumers in Europe have yet to be stirred.

And that is how, in a very polite way, you admit Europe's monetary policy has failed.

But fear not: when even "moar" QE and NIRP do not work, and the economists of the ECB admit the "monetary twilight zone" was a disaster, there is one last "tool" they can and will use - helicopters.

Because when it comes to printing money, whether in digital reserve format, or physical paper format, there is literally no limit how much can and will be created to achieve what is the endgame of the current monetary dead end: the total destruction of fiat as a store of wealth in order to preserve the global equity tranche while wiping away a few hundred trillion in debt.

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Don Pancho's picture

Paul Eberhart enjoys paying more for something now than in the future.

froze25's picture

OK, serously we got to admit that everything is clearly not awesome and not ok.  Negitive intrest on that much debt?  This is insane.  How long can it go for, who knows but I do know that it will not end well for the little people (me and everyone else) that live in the real world.  

NoDebt's picture

Japan, bitchez.  Been my call since I was born here on ZH.  Still looking like a good call with every passing day.

Serfs Up's picture

Obviously the only rational response to steeply negative interest rates is to sell gold, below the bid, in unlimited quantities, in the US paper ""markets""

NoTTD's picture

Because when things go bad you want to have your money in the stockmarkets.   Which can only go up.

centerline's picture

Yes.  And most people are being forced one way or another into the casino...  err trap. 

El Vaquero's picture

I want to see the motherfucker crash due to real market forces that are in effect today, but at this point, it either goes full Zimbabwe or it waits until something gets so terribly broken that it cannot be papered over and all hell breaks loose before it crashes. 

cpnscarlet's picture

Even at the Casino, there's a good bet - the buffet.

Just took some profits and bought 5 cases of Yoders for LT storage.

hungarianboy's picture

What is even more sad is that bankers still don't get it that no matter how much money they print, as long as it doesn't reach the main street and average joe it won't spurr inflation. The moment they start to figure out a way to send billions/trillions to the average person then you will see velocity in money and starts changing from hand to hand. Only then, i repeat, ONLY THEN you will see inflation. All they do now is create uncertainty and 95% of the people on earth don't trust the system anymore since the Lehman collapse and rather save money instead of buying things from it. So let the central bankers save themself a headache and give us all the billions to buy BMW's and new houses and clothes etc. Then you will see some proper inflation.

Gilnut's picture

Oh they get it alright.  The game is to use paper fiat to purchase all of the real assets left in the world.  It's a big club and you ain't in it.

cpnscarlet's picture

OK, so at this point, just get your piece of the pie in Ag.

chomu's picture

Pretty sure it's not Hansel and Gretel's the hedgies seeking capital appreciation by front running the CB's.


If you can flip a soveriegn @106 two days later for 108...who gives a shit what the coupon is?

Thought Processor's picture



Seriously, what does it take to get people to buy shit they don't need with money they don't have.  


Maybe they should be welcoming all those refugees, (whoops) I mean migrants in order to increase economic activity internally.


God help us if Americans all decide to stop using their credit cards at the same time.  The whole economic world would stop rotating.  

Four chan's picture

gun sales will be up, as european humans are forced to sink to the invasion of violent subhuman's level. why anyone would do this to their own hard fought for country is a complete mystery to me.


accross europe

daveO's picture

She had no weapon. What was she thinking?

Vlad the Inhaler's picture

Getting people to spend money would simply take a shift away from supply-side economic thinking.  Reagan brainwashed America so thoroughly it will never happen until it's too late.

Retired Guy's picture

Why not blame it all on a long dead president? All this get people to borrow and spend is demand side economics. To do something for supply one would need to make it possible for Americans to be producers. Like manage the national forests and harvest some wood instead of letting it accumulate and burn. Or how about more doctors instead of Obomber insurance. Insurance money is demand not supply. The only thing in gross over supply in America is lawyers and they don't produce anything but trouble.

El Vaquero's picture

Americans have curtailed their credit card use.  Go look up how much revolving credit there is and compare that to the past. 

roadhazard's picture

Fuck those post 2008 intrest rates.

daveO's picture

-10% since 2008.

More than replaced by non-dischargeable student loans.

Forward to the debt plantation, slaves.

froze25's picture

Now this is interesting.


Israeli military officer captured with ISIS terrorist by the Iraq military.

Pumpkin's picture

They better be careful.  They gonna get bombed by Putin.

Thought Processor's picture



Of course ISIS is being run by the western intel agencies.  It costs huge amounts of money to arm / equip / feed / house / and transport said militants not to mention support them with all the strategic intel etc.  

It's all being run by western Intel and funded by friendly (and corrupt) middle east Governments.  Hence the one country at a time takeover (Iraq, Afghanistan, Egypt, Libya, etc.) and when they ran afoul in Syria they had to seqway the mass of dudes outside the country and then call them (er....  or market them as) something different as they were obviously not all Syrian militants.

NoWayJose's picture

Wonder if Obama is going to bring this up when BiBi comes calling in November?

roadhazard's picture

There is enough bull shit on ZH wothout you adding yours.

Dr. Engali's picture

Europe's problem is they haven't done enough. Any credible eCONomist will tell you that you need to take on moar debt to get out of this mess. Just as Paul Krugman, he'll tell you. And he's a Nobel peace prize winner just like Obama, so he knows what he's talking about.

Lady Jessica's picture

What a great window of opportunity for implementation of structural reforms by the PIIGS.


taopraxis's picture
taopraxis (not verified) Oct 29, 2015 9:37 AM

I do not agree that the purpose of zirp and nirp were to force people out of their savings, though that may have been one stated reason. Basically, the central banks are monetizing insolvent governments and financial institutions. Now that financial markets have stalled, due to the zero rate boundary and the maturation of the credit cycle, additional policy initiatives are needed. Translation: Recession within depression will turn government finances even more upside down, so more money is needed to prop up the financial pyramid.

No private owner of negative-yield debt is likely to hold that debt if they know how to manage money. Take the capital gain and bank the cash at a low positive yield, or hold and draw regular income? Buy a negative yielding security? Why not just throw your money in the trash? No one with a brain is moved by the propaganda. The central banks are running a pyramid game and their losses will eventually bankrupt the system and be revealed just like embezzling is always revealed. There are no bottomless wells of money in the world, today.

pashley1411's picture

^^^TP^^^  has it.

You think the financial/university elite give a rat's ass about the "middle class" (a moment of silence in its passing)?     Creatures of the government trough from cradle to grave, their only interest, in the face of mere facts and the failure of their "models", is keep the gravy train going for them and the other "elite".

viahj's picture

well, it's not working so well yet.  in order to monetize the sovereign debt, NIRP must be pushed out harder and faster and along the curve.  France's neg 2yr isn't going to make a dent in their insovency anytime soon and  -25bps on Uncle Sam's debt wouldn't even be felt, such as a train @ 60mph hitting a fly. NIRP is their tip toe into the waters of full out hyperinflation.

we are quicly approaching the end game of direct monetization of sovereign debt by CBs, which will then blow up.  then we have the global reset.  got gold? (and any other resource) because the banks sure do.

daveO's picture

The High Priests of Financial Fraud.

pashley1411's picture

^^^TP^^^  has it.

You think the financial/university elite give a rat's ass about the "middle class" (a moment of silence in its passing)?     Creatures of the government trough from cradle to grave, their only interest, in the face of mere facts and the failure of their "models", is keep the gravy train going for them and the other "elite".

El Vaquero's picture

Getting people to spend is a part of it.  Our monetary system requires perpetual growth, and people buying shit that they don't need is part of that growth.  Without it, the government has to take up the slack on spending, else the ponzi scheme collapses.  In that respect, yes, financing insolvent governments is the goal, but forcing people to spend and keeping insolvent governments afloat are opposite sides of the same coin.  CBs must have growth that they are not going to get without fraud, and that fraud will only take them so far.

daveO's picture

We just need more storage units. Let's convert all those closed strip malls, pronto!

TheReplacement's picture

Instead of banking your money wouldn't you pull it out and try to take a loan at NIRP?

Perhaps you can have your cake and eat it too.

MachoMan's picture

Perhaps you can have your cake and eat it too.

Actually you can always have your cake and then eat it...  however, you cannot eat your cake and then have it...

Last of the Middle Class's picture

all your debts are turned to shit.  Iceberg dead ahead!!!


mrdenis's picture

went to a VW dealership yesterday ...20% off the list is what their offering ....I gave him my phone# and told him to call when it's 50% off . there was nobody in the showroom .

NoWayJose's picture

Wait for the "going out of business" signs!

froze25's picture

More of this to come as 2016 gets  closer.

Salah's picture

Europe = "world's largest geriatric petting zoo"  (h/t Doug Casey)