Ultra-Low / Negative Yields on Euro Area Long-Term Bonds

Causes and Implications for ECB Monetary Policy

This document was requested by the European Parliament's Committee on Economic and
Monetary Affairs.

September 1, 2016

Today’s ultra-low nominal long-term bond yields in the euro area are the result of a combination of the highly expansionary monetary policies of the European Central Bank (ECB), deep-rooted risk factors for long-term investors in the real economy, and the relative lack of additional supply of bonds from euro area governments. In contrast to nominal yields, real long-term bond yields in the euro area today are not at previously unseen low levels. The ECB’s ability to conduct monetary policy in the future will be constrained by today’s low long-term yields, though the latter are not the main threat to euro area banking system stability. Today’s low yields are overall good for euro area consumption but could over time cause trouble for parts of the euro area insurance and life insurance industries, as well as drive public discontent up in some of the euro area members with less internationally linked national financial systems.