September 2, 2019 / 11:47 AM / 21 days ago

UPDATE 1-Almost half of top quality euro corp bonds have sub-zero yields - Tradeweb

(Updates with comment, charts, context)

By Dhara Ranasinghe

LONDON, Sept 2 (Reuters) - The pool of negative-yielding bonds in the euro area expanded further in August, with almost half of euro-denominated investment grade corporate debt on the Tradeweb platform now carrying negative yields, Tradeweb said on Monday.

Growing recession risks, a bitter China/U.S. trade war and growing expectations for central bank rate cuts have pushed bond yields across the world lower this year, deepening the pool of assets with sub-zero yields.

Of the roughly 3.4 trillion euros ($3.8 trillion) of euro investment grade corporate bonds traded on Tradeweb, 49.51% or 1.68 trillion euros' worth, have a negative yield, data as of the end of August showed. This stood at around 12% in January.

The August number was the highest share on record, according to data compiled from Tradeweb, one of the largest electronic bond trading platforms, that goes back to mid-2016.

For an interactive version of the chart below: tmsnrt.rs/2kegFEn

"It is perhaps a worry that the pool of negative-yielding corporate bonds has risen so quickly and in a short period of time," said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

Investors say the growth of negative-yielding bonds reflects deep unease about the current economic outlook and central bank's ability to boost inflation.

"It chimes with the acceleration in government bond yields into negative territory and shows the difficulty that many active investors have in trying to find a yield, duration in this environment," Milligan said.

As trade war tensions escalated in early August, 30-year German and Dutch borrowing costs fell below zero percent ,, bringing the two countries into a club of developed countries, whose entire sovereign bond yield curves pay negative yields.

Below zero percent, investors are essentially paying governments and corporates to hold their debt - an investment that can be profitable if yields continue to fall.

According to the Tradeweb data, the number of government bonds in the euro area with negative yields soared in August.

Of the 8.18 trillion euros of euro zone government bonds on the Tradeweb system, 5.6 trillion euros or almost 69% of the total, had a negative yield - the highest on record. At the start of 2019, less than 40% of euro area government bonds on the Tradeweb platform carried negative yields.

The share of euro zone government bonds yielding below the ECB's -0.4 pct depo rate rose to 49% at the end of August, from 42% in July.

For an interactive version of the chart below: tmsnrt.rs/2V550om ($1 = 0.8973 euros)

Reporting by Dhara Ranasinghe; Editing by Sujata Rao and Susan Fenton

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