Last week it was Mario Draghi's promise that he would push European deposit rates even further into NIRP territory from their current -0.20% level, something which market not only believed but has already priced in and then some, pushing German 2Y yields to a record -0.35%...
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... but then earlier today, as predicted here previously, in a panic response Sweden's Riksbank did the only thing it can do to halt the "money tsunami" that Draghi is unleashing as he makes money even more unwanted, by expanding its QE for the 4th time this year since it was unveiled in February in hopes of making the SEK even more worthless than the Euro.
In short, Europe has unleashed yet another monetary panic, and nowhere is it more visible than in what happened today across the short end of Europe's government curve.
As the table below shows, 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!
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This reminds us of a post we did in January when the impact of NIRP was first felt on Europe's bond market, and when we wrote 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."
But what happens if one expands the Eurozone NIRP universe to include the debt of other countries including Japan, Denmark, Sweden, Switzerland and so on? Conveniently, JPM has done the analysis and finds that a mindblowing $3.6 trillion of government debt traded with a negative yield as recently as last week. This represents 16% of the JPM Global Government Bond Index, or in other words nearly a fifth of all global government debt is now trading with a negative yield, meaning investors pay sovereigns, using other people's money of course, for the privilege of buying their issuance!
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Following this article, there was a brief hiatus and bond yields normalized briefly on hopes the ECB may tame deflation, however all of that fell apart over the past month, when negative rates - and yields - have returned with a vengeance, as well as expansions of QE and who knows what other surprises European banks will unveil in the coming days (keep a close eye on that Denmark peg which may be the next "Swiss Franc" depegging shocker).
But nothing shows just how insane it is getting than the story of Italy, which earlier today not only sold €6 billion in Bills due April 2016, but did so at negative yields. From Reuters:
Italy sold six-month bills at an average negative yield for the first time on Wednesday as the prospect of further monetary easing in the euro zone pushed investors to pay to hold Italian debt.
Italy sold 6 billion euros ($6.6 billion) in bills due in April 2016 at a yield of minus 0.055 percent, down from a 0.023 percent yield paid a month ago on the same maturity.
Since then, the European Central Bank has indicated it could unleash new stimulus measures to shore up inflation as early as December, including possibly cutting its deposit rate further into negative territory.
The ECB's message pushed Italian yields below zero on maturities of up to two years on the secondary market.
The sharp fall in Italian borrowing costs since the easing of the euro zone debt crisis has brought welcome relief to the country's stretched public finances.
This was not the first time Italy was paid to issue debt: on Tuesday, Italy sold 1.75 billion euros of zero-coupon, two-year paper at a yield of minus 0.023 percent for the first time ever. The lowest yield paid at an auction of Italian bills had already fallen into negative territory in April, when six-month debt fetched a minimum yield of minus 0.011 percent.
We expect this to be only the beginning of Europe's (and soon the US') journey through the monetary twilight zone that is NIRP, as central banks around the globe no longer have any choice but to intervene any and every time there is even a modest 5% drawdown in risk assets, as we saw in September.
