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BNP Paribas analysts suggest that the Eurozone market rates have been holding in negative territory for more than 4 years as the highest-rated government & corporate bonds are still yielding less than 1%.

Key Quotes

“The distribution of interest rates around zero lower bound was initially seen as an exceptional crisis adjustment mechanism, but the situation persists. Some expect this exceptional period to finally come to a close once ECB halts its net securities purchases and possibly begins to raise key rates after summer 2019.”

“For others, situation has definitively changed: a bit like Japan, diminution of Eurozone interest rates marks the erosion of growth potential & the quasi-elimination of inflation.”

“Eurozone is not exactly Japan, & prevailing rates will not hold indefinitely at the zero lower bound. Yet Eurozone is not an optimum monetary zone, one in which transfers balance out the effects of rate increases varying from one country to the next. Regardless of timeframe, key rate increases are bound to be gradual & limited in scope.”