One in Five Company Bonds Purchased by ECB Yielded Negative Returns

By Francesco Canepa

FRANKFURT – The European Central Bank (ECB) revealed on Wednesday that one in five corporate bonds it has acquired since June has yielded negative returns. This raises concerns about the potential for a market bubble and the necessity for the bank to reduce the pace of its asset purchases.

Since June, the ECB has purchased €13.2 billion (approximately $14.8 billion) in corporate bonds, aiming to lower borrowing costs for companies to encourage hiring and investment.

The yields on these bonds varied, with some dipping to as low as negative 0.3 percent and others exceeding 3 percent. The ECB disclosed that just over 20 percent of its total purchases yielded below zero in its economic bulletin, marking the first detailed report on these transactions.

Bonds with negative yields typically include those maturing within the next four years and are issued by high-quality or state-supported companies, including major players like Nestle and Engie.

The decrease in yields since the announcement of the program in March suggests that the ECB has effectively managed to lower interest rates, particularly for larger companies that utilize public markets for financing. However, concerns are mounting that the ECB’s extensive buying may be driving yields down excessively, potentially distorting the market and compromising the assessment of default risk, which could weaken borrower accountability and contribute to a financial bubble.

Several bonds purchased by the ECB, such as those from state-owned Deutsche Bahn, yield less than the risk-free rate, a benchmark for assessing the compensation investors receive for credit risk according to estimates from experts.

Philip Gisdakis, an analyst at UniCredit, expressed his expectation that the ECB would reduce its bond purchases, stating that if the current buying pace continued, the bank would be forced to buy bonds with negative spreads—an illogical prospect for many companies.

The bonds obtained through the ECB’s credit program received ratings ranging from AA to BBB-, reflecting a distribution in line with the overall eligible debt market.

Unilever emerged as the leading sector, accounting for 28 percent of the ECB’s purchases, followed closely by utility companies.

Most of the bonds acquired were worth less than €10 million each, with direct trades with issuers being generally larger than those conducted on the open market.