The Unstoppable Surge in Negative Yields Reaches $17 Trillion
The global stock of negative yield debt now exceeds $ 17 billion, as the growing market volatility lends additional strength to this year’s unprecedented bond recovery.
It should be noted that thirty percent of all investment-grade securities now have returns below zero, which means that investors who acquire the debt and hold it until maturity are guaranteed a loss. Despite this, it is curious that buyers are still accumulating, seeking to benefit from greater increases in bond prices and favorable cross-coverage rates, or at least to avoid further losses elsewhere.
It is a fact that the phenomenon of negative performance is becoming the head of financial markets.
Effects that are already established
Undoubtedly, effects have already been established in the face of such a situation that in fact raises the spectrum of a bond bubble, depletes pension funds from a valuable source of income and encourages riskier companies to mortgage their assets. In addition to this, banks have to assure citizens that they will not start charging customers suddenly for storing their money.
With the recession signals flashing around the world, such as the Treasury’s inverted yield curve, and with a trade war between the United States and China, there are arguments for the stock of debt with negative returns to continue expanding. And in fact, monetary policy could also play a role, since the European Central Bank will decide in September if it will reduce interest rates below zero and could end up expanding its quantitative easing package of 2.6 billion euros.
Investors are willing to pay a premium and, ultimately, to suffer a loss, because they need the reliability and liquidity provided by the high-quality government and corporate bonds. Large investors such as pension funds, insurers, and financial institutions may have few other safe places to store their wealth.
Source: John Ainger | Bloomberg