The multitrillion-dollar black hole engulfing the world's bond markets

Brexit will keep driving investors into the safest assets, meaning demand will remain high for negative-yielding debt

Negative-yielding debt topped $13 trillion in June, having doubled since December, and now makes up around 25% of global debt

 

Market news: There’s a multitrillion-dollar black hole growing at the heart of the world’s financial markets. Negative-yielding debt — bonds worth less, not more, if held to maturity — is spreading to more corners of the bond universe, destroying potential returns for investors and turning the system as we know it on its head. Now that it looks like sub-zero bonds are here to stay, there’s even more hand-wringing about the effects for mom-and-pop savers, pensioners, investors, buyout firms and governments.

Why invest in a bond that will lose you money?

Typically, bonds are the safest assets on the market, so many investors seek them out at times of heightened market stress, say a US-China trade war or tensions in the Persian Gulf. A bond can have a modestly positive coupon when issued by a government, institution or company, but once it starts trading, high demand by investors can push its price up — and therefore its yield down — to such an extent that buyers no longer receive any payment. Some funds track government bond indexes, meaning they must buy the bonds regardless of the yield. And some investors can...read more