You know the world has gone truly mad when... For what we believe is the first time, a Euro-denominated corporate bond yield has gone negative. Aa2-rated Swiss chocolate-maker Nestle saw its 2016 bonds close at -0.2bps yield follows the swing to negative yields among covered bonds (bank debt backed by loans) that started in September.
Nestle's 2016 EUR-denominated bonds closed with a -0.2bps yield...
With the growing threat of falling prices menacing the euro-area’s fragile economy, some investors are calculating it’s worth owning Nestle bonds, even with little or no return. That’s because yields on more than $2 trillion of the developed world’s sovereign debt, including German bunds, have turned negative and the ECB charges 0.2 percent interest for cash deposits.
“In the same way that bunds went negative, there’s nothing, in theory, to stop short-dated corporate bond yields going slightly negative as well,” Martin said.
“If investors want to park some cash, the problem with putting it in a bank or money market fund is potential negative returns, because of the negative deposit rate policy of the ECB.”
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We leave it to Deutsche Bank to conclude:
Staying on absurdly low yields, with nine countries in Europe now having negative two-year yields, it was perhaps only a matter of time before we saw corporate euro denominated yields follow suit.
Maybe chocolate is the new Gold!!