(Bloomberg) — The world’s pile of negative-yielding debt has vanished, as Japanese bonds finally joined global peers in offering zero or positive income.
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The global stock of bonds where investors received sub-zero yields peaked at $18.4 trillion in late 2020, according to Bloomberg’s Global Aggregate Index of the debt, when central banks worldwide were keeping benchmark rates at or below zero and buying bonds to ensure yields were repressed. Japan’s yields were the last to leave the sub-zero club because policy makers there had stuck for so long with ultra-loose settings brought in even before the pandemic.
Investors are betting the world’s last uber-dovish monetary authority is inching toward normalization. The European Central Bank exited its negative-rate policy in July, followed by its counterparts in Switzerland and Denmark in September. The Federal Reserve, meantime, raised its benchmark by 4.25 percentage points last year, the most since 1973.
“The fact that Japanese bonds have finally left negative territory underscores how important BOJ developments will be for global bonds markets over the course of this year,” said Prashant Newnaha, a rates strategist at TD Securities Inc. in Singapore.
Yields across the curve have jumped in Japan after the Bank of Japan surprised markets on Dec. 20 when it doubled the yield cap for benchmark 10-year government bonds to 0.5%. That yield edged down two basis point on Thursday to 0.435%, having reached as high as 0.48% on the day of the BOJ decision.
A Japanese government bond maturing in March 2024 had been the last security in the Bloomberg index, which tracks fixed-rate notes that have a maturity of at least one year, and its yield climbed to zero on Wednesday. The number of bonds in the index also peaked in December 2020, at more than 4,600. The quantity dropped to a mere 46 the day before the BOJ meeting, and had fallen to that solitary security as of Dec. 30.
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