FRANKFURT (Reuters) - Foreign investors sold euro zone debt for the first time since 1999 last year while domestic buyers took money abroad, fleeing ultra-low yields and rising fears of a euro break-up, European Central Bank data showed on Monday.
It suggested investors were taking advantage of the ECB’s bond purchases to sell out of the euro zone rather than seek higher returns within the area, as Frankfurt was hoping when it launched its 2.3-trillion-euro stimulus programme.
Investors from outside the euro zone sold a net 192 billion euros worth of its debt, mostly government and bank bonds, and more than halved their net purchases of euro zone stocks from the year before, the ECB data showed.
Domestic investors, meanwhile, bought a net 364 billion euros of debt from outside the currency area, only sightly below the previous year’s record high.
The Frankfurt-based central bank blamed the outflows on lower bond yields in the euro area than abroad and Britain’s vote to leave the European Union, which has rekindled worries about the survival of the European project.
“The persistently negative interest rate differentials vis-à-vis other advanced economies were an important determinant of net portfolio debt outflows in 2016,” the ECB said.
”Moreover, these estimates suggest that investors’ risk aversion contributed somewhat to net portfolio debt outflows in the second half of 2016, which may be linked to ... the United
Kingdom’s referendum on EU membership in June 2016.”
Ironically, Britain’s share of the foreign debt bought by euro zone investors grew in the second and third quarter of last year to make it the second-largest destination after the United States.
Fears of a euro break-up have risen to their highest since 2012, according to a gauge risk compiled by Thomson Reuters financial information service IFR and based on the cost of insuring against the defaults of different countries.
To see a chart: tmsnrt.rs/2lu82TF
This spring’s presidential elections in France, where nationalist candidate Marine Le Pen is expected to get to the second round, are seen as a key source of uncertainty by investors. Germans will also go to the polls in September.
Reporting by Francesco Canepa; editing by Mark Heinrich