How to make sense of the negative bond yield theory

With over €1trn of euro area debt maturing in one year paying a negative yield, Thomas Samson, portfolio manager at Muzinich & Co, analyses the options for bonds investors in Europe

It is the €1.1trn question: what impact will the European Central Bank's massive programme of quantitative easing have on bond markets? J.P. Morgan has estimated that as much as €1.5trn of euro area debt maturing in a year is currently paying a negative yield. Investors have never had to deal with negative-yielding bonds or QE in Europe.  Arguably, and ironically, one of the safest responses may be to take more risk - moving out of eurozone government bonds into investment grade corporate bonds and higher-quality, double-B rated high yield bonds.  High yield default rates are curre...