The Swiss food company is one of Europe’s most highly rated companies, and the plunge in the Swiss government bond yields following the introduction of negative interest rates at the local central bank has already pushed the yield of its Swiss franc debt maturing in May to minus 51 basis points.
But Nestle’s €500m bond maturing in October 2016 has now also slipped below zero, a vivid example of how the surge in bond demand triggered by the European Central Bank’s €60bn a month asset purchase programme is crimping borrowing costs across the continent – for governments and companies alike.
The «bid» yield of the 2016 Nestle bond – as implied by the price investors are willing to pay for the bond – is still barely positive, but the «ask» yield (what bondholders are asking to sell their security) has continued to fall since going below zero in mid-January, according to Bloomberg data.
That has pushed the mid-point between the two yields to minus 0.004 per cent today (see chart below).
In comparison, the company’s €500m bond maturing in 2021 is trading at a yield of 0.33 per cent today.
The Nestle bond matures in less than two years, so it is a relatively short-dated security, but the fact that its headline yield has gone below zero is a stark example of how markets are being thrown into a tizzy by the ECB’s looming bond purchases, and other central banks continuing to shave interest rates across the world.
Alberto Gallo of RBS points out that if eurozone companies and governments continue to issue debt at the same pace, then the euro-denominated bond market will actually start to shrink once the ECB starts buying, given that its purchases will outstrip monthly supply of debt.
Source: FastFT