Government bonds and corporate bonds increasing go negative.

Negative interest rates have added another casualty.

According to Pensions and Investments, 50.7% of European government bonds and 28.3% of euro-denominated investment-grade corporate bonds have negative yields.

This low-rate world means that investment fees become a significant drag on already meager fixed-income returns. The focus on costs from passive managers has also been putting pressure on active managers to reduce expenses. A study by McKinsey released last month found that “Pressure has been persistent on revenue yields, with fee compression responsible for about 80 percent of the decline in revenue yields year over year.”

How Negative Interest Rates Impact Europe

Declining fees and a quickly developing lack of interest in fixed income due to low returns in Europe is pressuring European fixed income managers. McKinsey also found that revenues for European fixed income managers have dropped 2% per year between 2015 and 2018.

McKinsey also noted: “Growth continued favoring managers with scale and scope, and consolidation gathered steam as managers sought to build their presence in high-growth areas and invest in technology to create more efficient operating platforms. However, despite the largest managers having achieved higher AUM growth, industry fragmentation has sustained particularly amongst managers with less than €100 billion in AUM.”

With fee pressure unlikely to abate any time soon, the choice for smaller managers is going to sell themselves to a larger firm or engage in mergers of equals to gain the size and scale needed to be competitive and profitable.

Related: RBC Global Asset Management has launched the RBC BlueBay Global Bond Fund