The Seemingly Unstoppable Growth Of Negative Yields

While theoretically impossible according to classical economics and almost non-existent prior to August 2014, the number of bonds with negative yields keeps growing and growing. Negative yields started first at the short-end of the yield curve and then moved out to longer and longer maturities. The benchmark 10-year went negative in a few countries. Then on July 5, 2016, the 50-year bond in Switzerland went negative. The next day, the yield on the 20-year government in Japan was negative. Even bigger news in 2016, though, was the sudden growth of negative yielding corporate bonds.
By the start of 2016, there were $5.65 trillion in negative yielding debt. This was considered a substantial amount since it was over 10% of outstanding global bonds. At the time, however, it looked like a plateau had been reached and the amount wasn't much higher than it had been in early 2015 after the first growth spurt of sub-zero interest rate bonds that began shortly after the European Central Bank (ECB) dropped its deposit rate below zero in June 2014. The Bank of Japan (BOJ) then instituted its own NIRP (negative interest rate policy) in late January of 2016 and this opened the floodgates. By May, there was $9.4 trillion in negative yielding bonds, by June, $11. 7 trillion, and by mid-August $13.4 trillion (data from Fitch Ratings). The total was approaching one-third of all outstanding global debt.

Source: BAML
While most sub-zero interest rates are on government bonds, the big... Read more