Portugal Government Bond Yield Turns Negative for the First Time... ECB Additional Stimulus Expectations

ECB Reveals Recession Concerns in Minutes
Bond Purchase Scale Expected to Expand in December Meeting

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The yield on Portugal's 10-year government bonds fell below zero for the first time. This was due to growing concerns about an economic recession caused by the impact of the novel coronavirus disease (COVID-19), raising expectations that the European Central Bank (ECB) would undertake additional asset purchases.

On the 26th (local time), major foreign media outlets reported, citing market information provider Tradeweb, that the yield on Portugal's 10-year government bonds briefly dropped into negative territory during trading. Ludovic Collin, a fund manager at Swiss-based Bontebel Asset Management, explained, "The market views these bonds as disappearing into the ECB's vault."

The drop of Portugal's government bond yields into negative territory came after the release of the minutes from the ECB's monetary policy meeting. The minutes revealed that the ECB assessed the Eurozone economy as facing downward pressure. In the context of a resurgence of COVID-19, some European countries are expected to experience a 'double dip'?a recovery followed by another recession.

Philip Lane, the ECB's Chief Economist, also expressed concerns about corporate loan demand and credit tightening during a lecture on the same day. He predicted that if banks respond to decreased corporate loan demand by adopting a negative economic outlook and tightening lending standards, it could adversely affect the economy.

Accordingly, investors are increasingly weighing the possibility that the ECB will expand its emergency bond purchase program, currently sized at 1.35 trillion euros, at next month's monetary policy meeting. This is especially significant as Portugal, which is expected to see an 8.8% contraction in economic growth this year due to COVID-19, has a high debt ratio alongside Italy and Greece.