Negative yields decline in Dutch bond markets

Sovereign bonds account for majority of securities yielding negative returns
Netherlands Bank
Rachael King

The share of negative bond yields in the Netherlands declined in the first half of 2021, according to data from the Netherlands Bank.

By the end of June, the total value of sovereign and corporate bonds yielding below 0% stood at €624 billion ($731 billion). This was €124 billion less than at the end of 2020.

Dutch bonds yielding negative returns reached a record high of €795 billion in November 2020, but this stock has declined by 22% since then. Nonetheless, 32% of Dutch bonds are still yielding below 0%.

Higher yields in debt markets partially reflect investors’ demand for higher returns amid rises in expected and actual inflation. On July 30, the European Union’s statistical agency estimated that year-on-year eurozone inflation has increased from 0.9% in January to 2.2% in July. That estimate puts inflation slightly over the European Central Bank’s 2% target.

Negative yields in the Netherlands are mainly concentrated in the sovereign debt market. Investors regard the Dutch government as a safe issuer in the eurozone, similar to the German and Austrian governments and the European Commission.

“Whereas at the beginning of 2020 almost all outstanding Dutch sovereign bonds (98%) were trading at negative yields, this proportion had fallen to 74% by June 30, 2021,” said the DNB in a statement. “This decrease is smaller in absolute terms, however, as the total amount of outstanding debt increased by about €35 billion, to €342 billion.”

In the first six months of 2020, Dutch 10-year sovereign bond yields rose from -0.5% to close to 0%.

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