European bond buyers find negative doesn't necessarily mean bad

By Lukanyo Mnyanda

Giving away your money doesn?t mean losing it these days.

Investors who held shorter-dated European debt have managed to eke out a positive return in 2015, according to Bank of America Merrill Lynch indexes. That was even as price increases pushed yields in Germany and Austria below zero.

The persistence of negative yields is a consequence of unprecedented central bank monetary easing that has suppressed borrowing costs across the world, regardless of the prospect of deflation in Europe and Greece running out of money.

?There?s an element of having to hold bonds almost in spite of the yield,? said David Tan, London-based head of rates at JPMorgan Asset Management, which oversees $1.7 trillion. ?As long as Greece remains an issue for financial markets, there?s an additional reason to want to hold bunds.?

Euro-area government notes maturing between one and three years earned 0.5 percent this year through Thursday, according to the Merrill Lynch indexes. While that?s dwarfed by a return of 14 percent in maturities of at least 15 years, the price of safety hasn?t been capital losses.

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Buying has continued even as some yields lower than the European Central Bank?s minus 0.2 percent deposit rate mean the securities don?t qualify for inclusion in the ECB?s bond- purchase program that started March 9.

Yields on German two-year notes recorded their fifth straight weekly decline, touching record-low of minus 0.285 percent on Thursday. Germany?s eight-year yields dropped below zero. Those on 10-year bunds declined for a second week and touched a low of 0.139 percent.

?One should be careful not to mix up the yield-to-maturity concept with total returns which can be positive even if...