Bond yields rise as prices fall. By the end of November, the amount of negative yielding debt had fallen back to roughly $12trn as investors jumped back into stocks, but that is still a long way from a rout. In a world short of the “safe” assets that investors crave, 2020 is likely to serve up more of the same.
The bubble hasn’t burst, but the air might be seeping out, says Randall Forsyth in Barron’s. The yield on Austria’s 100-year bond, which doesn’t mature until 20 September 2117, fell to a minuscule 0.61% over the summer, but is now back above 1%. That marks a 20% decline in the value of the underlying bond, but still looks “bubblicious” given the risks of investing in a country with such a turbulent history.
In October even the Greek government managed to sell €487.5m of short-dated bonds on a negative yield. That is partly thanks to central bank quantitative easing policies.It also suggests that bond markets are remarkably relaxed about profligate governments, says Tommy Stubbington in the Financial Times. With monetary policy widely recognised as being out of ammunition, many would welcome a “pivot” to greater fiscal stimulus in developed economies. That would mean more debt issuance and, perhaps, slightly more sensible yields.
Bond investors beware, says Michael Mackenzie in the Financial Times. With bond yields now so low, or even negative, there is little room for them to act as effective ballast in the case of a nasty market shock.