Fitch: Negative-Yielding Sovereign Debt in Japan Down, Europe Up

The global stock of negative-yielding sovereign debt fell modestly to $11.4 trillion as of August 2, compared with $11.5 trillion on July 15, according to Fitch Ratings. Japanese yields moved higher in late July in response to the latest monetary and fiscal policy announcements in Japan, while European sovereign yields continued to drift lower.

An increase in the amount of European sovereign debt with sub-zero yields offset in part the decline in the corresponding Japanese total, driving the $0.1 trillion two-week fall in the global stock of negative-yielding sovereign debt. The magnitude of the decline was reduced by the depreciation of the dollar versus the yen and euro in late July.

As seen in the chart below, Japanese debt still makes up the majority of negative yielding sovereign debt globally. However, the Japanese total has decreased from levels seen on June 27, when yields on Japanese government debt were less than zero out to 17 years in maturity. As of August 2, yields were negative out to nearly 12 years in Japan. This decrease in negative-yielding debt has been partially offset by a strengthening yen, keeping the Japanese total above $7 trillion. All else equal, an appreciation of the yen versus the dollar boosts debt levels in dollar terms.

Sovereign yields for most European countries fell modestly across the curve in late July. In Germany, sovereign debt with 13 years in remaining maturity yields less than zero. A strengthening euro helped push the total of European sovereign debt yielding less than zero to $4.2 trillion on August 2 from $4.0 trillion on July 15.

Negative yielding debt is not limited to sovereign issues. In Japan, $32 billion of bonds issued by Japanese financial institutions and corporates were trading with negative yields as of August 2. This represents about 5% of the Japanese corporate bond universe. The phenomenon is spread across various sectors. Banks and transportation and logistics entities had the most negative yielding debt outstanding with $14 billion and $12 billion outstanding, respectively. The average maturity on negative yielding Japanese corporate debt is just under two years.

This study analyzed the debt issues from the 14 Fitch-rated investment-grade sovereigns with at least $50 billion in debt outstanding and one issue yielding less than zero, according to Fitch calculations on August 2. The population was comprised of all fixed-rate, publicly held debt listed in the countries' local currencies with yield data available from Bloomberg, excluding strips, callable and sinkable bonds. This study did not include international bond issues or retail-only bonds, which is a slight but immaterial change in methodology from previous studies.

The analysis on Japanese corporate securities did not include convertible bonds.