As yields turn negative, investors are having to pay for safety

PENGUINS ON A melting icecap must choose between budging up tighter and taking the plunge. Institutional investors such as pension funds and insurers now face a similar unappealing choice, with ever-fewer safe assets that do not lose them money. According to an index calculated by Bloomberg, a quarter of the bonds issued by governments and companies worldwide are now trading at negative yields. Creditors holding $15trn-worth of securities will make a loss if they hold them to maturity (see chart).

Yields on many European government bonds turned negative in the mid-2010s as central banks engaged in quantitative easing—colossal bond-purchase programmes. By 2015, 40% of the continent’s sovereign bonds offered negative yields. But as economies perked up, central banks changed course. By November 2018 many European bonds were back above sea level.

Now many have gone negative once again. France’s ten-year bonds have been flirting with negative yields for two months; they went below zero three weeks ago and stayed there. Ireland followed on August 5th. Fiscally conservative countries like Austria and the Netherlands are well past that point. Spain and Portugal may soon follow, says Iain Stealey of JPMorgan Chase’s asset management division. Germany’s entire yield curve is already submerged.

As the trade war between...

via The Economist: Finance and economics Business Feeds

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