During an interview with Investment Adviser’s Julia Faurschou, Mr Dryden, global market strategist at JP Morgan Asset Management, said the ECB’s quantitative easing program – announced at the start of this year – has pushed yields very low.
He said: “This seems to be a common phenomena and is particularly concentrated in Europe; right now about 30 per cent of eurozone government bonds have a yield of less than 0 per cent.
“That phenomenon seems to be getting worse as the ECB looked to be accelerating their quantitative easing program next month.”
Mr Dryden said investors have been accepting a guaranteed loss, a trend that has been spreading across eurozone government bond markets.
But he argued investors can still make money from negative yields, particularly if they see inflation in negative territory for the foreseeable future.
He also suggested the lack of alternatives when it comes to large institutions or banks trying to put cash on deposit was another factor driving investors towards negative yields.
“This trend seems to be accelerating,” Mr Dryden said, pointing out that in September 20 per cent of eurozone government bonds were yielding at less than 0 per cent, against 30 per cent this month.
“The reason it seems to be accelerating is the anticipation by the markets that Mario Draghi seems to be sowing the seeds for potentially more quantitative easing in December.
“So he might be extending the duration of the quantitative easing program, the size of the purchases, or maybe [altering] exactly what he’s purchasing.”
He said there has been talk that the ECB might be looking to purchase corporate bonds, which he argued could result in negative yields for corporate bonds.
Mr Dryden also suggested the central bank could cut the deposit rate into deeper negative territory, which he said could incentivise more people to be investing in negative yielding assets.
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