Negative yielding global bonds have become a thing of the past for the first time in nearly a decade as rapidly rising interest rates mark the end of the era of distorted debt markets.
No sovereign debt traded with a negative yield for the first time since 2014, according to Bloomberg data, with the last sub-zero yielding Japanese bond rising into positive territory yesterday. Bond yields rise when prices fall.
Record central bank stimulus from negative interest rates and mass quantitative easing forced bond prices so high that debt holders lost money if holding the assets to maturity since 2012. But aggressive interest rate rises in 2022 caused dramatic falls in bond prices, lifting yields far into positive territory and generating healthier returns.
“This looks set to be the welcome end of an era as some value returns to global fixed income,” said Jim Reid, strategist at Deutsche Bank. “Two years ago we had $18.4 trillion globally and over 4,000 bonds with a negative yield”.
The Bank of Japan’s (BoJ) surprise decision to tweak its cheap money policy in late December was the final domino to fall for the pool of negative yielding debt. Japan’s central bank had been the only major holdout in an environment of hawkish monetary policy, where other central banks moved into restrictive policy territory to fight 40-year high inflation.
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The BoJ said it would show more flexibility in its target for ten-year government bond yields, which has led to trillions in purchases. Last year was the largest increase in US 10-year treasury yields since 1788, Deutsche Bank said.
