The global bond market has just hit a major milestone: the amount of sovereign bonds with negative yields has fallen to zero for the first time in roughly a decade, according to a Bloomberg index tracking this corner of the sovereign-debt market.
The last negative-yielding bond with a maturity date more than one year in the future was a two-year Japanese government bond (JGB) BX:TMBMKJP-02Y. Yields on that bond rose just north of 0% on Thursday, bringing the dollar value of bonds with negative yields back to zero for the first time since 2014, according to the Bloomberg Barclays Global Aggregate Negative Yielding Debt index.
A few JGBs with maturity dates less than one year still have negative yields, according to data from FactSet, but the Bloomberg index excludes bonds issued with less than a year to maturity.
Before negative-yielding bonds started becoming commonplace in 2014, “most people would have thought negative-yielding debt was an inconceivable concept,” said Jim Reid, the head of thematic research at Deutsche Bank, who shared a chart illustrating the decline in a note to clients and journalists.
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See: Global pile of debt at negative yields dips below $3 trillion: Deutsche Bank
Japanese policy makers essentially hammered the last nail in the coffin of negative-yielding bonds last month when the BoJ decided to loosen its grip on its domestic bond market last month.
Negative yields essentially meant that investors were paying for the privilege of financing government debt, according to bond-market strategists.
Years after the 2008 financial crisis, the Bank of Japan and European Central Bank cut their policy interest rates into negative territory to try and bolster still-stagnant economic growth. The BOJ introduced negative policy rates in 2016, while the ECB did so in 2014.
Central banks also aggressively bought up bonds issued in their respective currencies, helping to drive up prices, which move inversely to bond yields. While the Fed never adopted negative interest rates, central banks in Switzerland, Denmark and Sweden adopted similar policies.
As a result, investors were forced to pay for the privilege of locking their money up in these bonds which stoked resentments among some investors and market strategists.
“Good riddance,” said Peter Boockvar, chief investment officer of Bleakley Financial Group, in a note on Thursday where he addressed the end of “ZIRP” — or zero interest-rate policy — era.
To be sure, Boockvar mused about whether bond investors might be facing even more fallout as bond prices continued to tumble: “we now have to deal with the popping of this epic sovereign bond bubble,” he said.
The amount of negative-yielding bonds peaked at $18.4 trillion in December 2020, according to the Bloomberg index.
This constituted about one-quarter of global bonds outstanding at the time, according to Bloomberg data.
Rock-bottom inflation helped stoke demand for negative-yielding bonds but last year, central banks abandoned negative- and zero-interest rate policies as inflation accelerated, market analysts said.
Whether or not these bonds could make a triumphant return in the not-too-distant future remains a possibility, Reid said.
“While there is no value in buying negative yielding debt, especially in a fiat world where inflation will always likely be positive, you can’t rule out central banks having to buy large amounts of debt again in the future.”
U.S. bond prices tumbled on Thursday, with the yield on the 10-year Treasury note
TMUBMUSD10Y,
considered the U.S. bond-market benchmark, up marginally at 3.722%.
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