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The search for yield is always a struggle.
The debt pile in the world that offers a negative nominal return – meaning that investors would actually have to pay for the privilege of parking their money – is on the rise again.
According to the Financial Times, a Barclays index shows the amount of debt offering negative returns now stands at $ 16.5 trillion, a six-month high.
Earlier this week, the German 30-year government debt yield TMBMKDE-30Y,
slipped below 0% for the first time since February and traded at -0.051% on Thursday. This means that the entire German government yield curve is once again trading in negative territory.
Japanese yields also fell, with the 10-year government bond TMBMKJP-10Y,
yield dropping below 0% this week. Yields fall as bond prices rise. The European Central Bank and the Bank of Japan both maintain official interest rates below zero.
It’s part of a global story that saw yields rise earlier this year as investors accepted expectations of a reflationary surge as the global economy reopened in the wake of the COVID-19 pandemic. Inflation is eating away at the flow of interest payments offered by bonds. Rising inflation fears sparked a massive sell-off of bonds, which pushed up yields.
More recently, inflation concerns have given way to fear of economic growth, in part due to the prevalence of the delta variant of the coronavirus, which is in part responsible for the further decline in long-term yields. In the United States, official rates and debt yields remain nominally positive, but the 10-year rate TMUBMUSD10Y,
fell sharply, trading below 1.14% – its lowest since February – on Wednesday, before rebounding somewhat.
The moves sparked a series of rotations in the stock market, while major averages set a series of record highs. The Dow Jones Industrial Average DJIA,
is up more than 14% year-to-date, while the S&P 500 SPX,
increased by 17.7%.
It is not surprising to see negative global yields pulling US yields down.
Nicholas Colas, co-founder of DataTrek Research, pointed out the chart below in a note on Thursday, observing that the downward trend in sovereign debt yields began after the 2008 financial crisis. only the result of the purchase of bonds by central banks. , but also a slow recovery from the 2007-2009 recession and aging demographics in much of the developed world.
The chart above tracks the 10-year Treasury yield, the bold black line, against the 10-year yields of Japan (light blue line), Australia (dark blue), Eurozone (orange ), Switzerland (red) and the United Kingdom (green). Over time, the Treasury’s yield shifts from the middle of the pack to the top, Colas noted.
While there are other reasons for the 10-year yield falling from its March high of just under 1.80%, the realization that the pandemic continues to wreak havoc on growth Global economy tops the list, he said, leaving the world’s asset allocators with little to choose from.
A certain return “is better than nothing, so capital flows into the Treasures,” he said.
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