Monday, 07 March 2016 00:00

Sovereign Bonds Worth $6.7 Trillion With Negative Yields

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Overview - $6.7 Trillion in sovereign bonds were trading with negative yields as of February 2016 according to the data in the March 2016 “BIS Quarterly Review.”

My View - In February 2016, Yellen mentioned that the option of negative interest rates was open, but unlikely. In my view, the world is moving towards negative interest rates and if global economic activity remains sluggish, it would not be surprising if the fed moves in the same direction.

Central Bank Deposit Rates - The Swiss National Bank, ECB and Bank of Japan already have negative deposit rates of 0.75%, 0.3% and 0.1% respectively.

Growth In Negative Bond Yield – Government bonds with negative yields has surged from zero in January 2014 to $6.7 trillion as of February 2016.

Sovereign Bonds Trading At Negative Yields

 

Implications – As central banks move towards negative rates, I expect increasing shift away from bonds towards risky asset classes so that returns can comfortably beat inflation. There is likely to be increased volatility across asset classes as money flows from one asset to another in search of higher returns.

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