As the European Central Bank (ECB) wound down its asset purchases for the year, the amount of eurozone government bonds that yield less than zero was at about US$1.68 trillion, indicating that investors see the potential for further easing of monetary policy next year.
With quantitative easing acquisitions set to resume on Jan. 4, bonds of governments from Portugal to Germany are to again be supported by the 1.5 trillion-euro (US$1.65 trillion) program, which is scheduled to keep running until at least March 2017.
Started in March this year, the purchases continue to push an increasing number of securities off the table — meaning their yields are so low they are ineligible for buying.
The total issued value of bonds that yield less than the ECB’s minus-0.3 percent deposit rate, and are thus deemed ineligible for acquisition by the ECB, is about US$616 billion of the US$6.35 trillion Bloomberg Eurozone Sovereign Bond Index.
A slump in oil prices is supporting economists’ view that the ECB is unlikely to veer from its accommodative policy stance as it struggles to achieve its inflation goal of just under 2 percent, fulfilling a principal aim of the asset-purchase program.
So many sub-zero-yielding securities “indicate that there is a belief that there is no real inflationary pressures evident yet, and the ECB will remain ready to do more if required,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP.
With oil languishing near an 11-year low and the region’s inflation a long way below the ECB’s goal, Callan said “crude oil is probably the leading indicator as regards to where ECB policy and where bond yields go in the start of 2016. That is what most of the markets are looking at the moment.”
Separately, as liquidity in the Persian Gulf tightens after the plunge in oil prices, Emirates Global Aluminium PJSC, a joint venture between Abu Dhabi and Dubai, is said to be paying almost 40 percent more for a loan compared with last year.
The state-controlled company will pay 200 basis points, or 2 percentage points, above the London Interbank Offered Rate on a US$4.9 billion, seven-year conventional loan and an Islamic facility, according to three people with knowledge of the plan.
Companies in the six-nation Gulf Cooperation Council, home to about 30 percent of the world’s proven crude reserves, are beginning to face higher borrowing costs after oil’s 65 percent plunge since June last year led to a slowdown in bank deposit growth.
The Emirates Interbank Offered Rate, a local benchmark used to price some loans, climbed the most this year since at least 2006 to 1.04729 percent, the highest since April 2013.
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