Here’s an interesting factoid by way of Bartosz Pawlowski from BNP Paribas’ CEEMEA team — Eurozone yields aren’t the only ones being haunted by negativity.
As it turns out, euro-denominated non-eurozone debt is also treading perilously close to the zero mark.
Check out the diminishing yield on the following 7-month Polish euro-denominated government paper:
As Pawlowski informed FT Alphaville (our emphasis):
€papers from CEE are getting to surreal levels BBG is full of headlines that certain Eurozone countries see their yields dipping into negative territory. However, we are at the point when the wave of €s is simply too high to be confined within the eurozone. The front end of €-denominated papers issued by Poland is trading just a spread away from negative yield (POLAND 4 ½ 02/05/13) and while it’s only a 7M paper, it is still very telling.
A similar situation can be observed in the Czech Republic (14s at 60bp), Bulgaria (Jan13s at zero-ish). Even SOAF € papers are benefiting even though they are not ECB-eligible collateral. We have recently been recommending selling Poland CDS and buying the PLN (FX) and while there’s still juice in the latter, the credit is beginning to look really stretched.
Therefore, we would not be surprised to see people piling into CEE quasis denominated in €. Names like Ceske Drahy (Czech Railways), PGNIG (Polish Gas and Oil) or PKO (biggest Polish bank) are state-owned and they offer a 160ish pick-up over comparable sovs (vs. 80ish in mid-May). Some are ECB-eligible although with 30-40% haircuts.
So who would be buying stashes of euro-denominated non-eurozone, non ECB eligible, debt? Surely not… the SNB?
We told you negative rates were a big deal - FT Alphaville
The negative carry universe - FT Alphaville
On the transfer of risk and the mystery of low yields - FT Alphaville
The ‘high-powered money’ problem - FT Alphaville