Exhibit 1: Volume of negative yielding debt in multi-sector global bond index rises sharply as G3 central banks prepare to cut policy rates
This graph shows the value in USD billion of the Bloomberg Barclays Global Aggregate Negative-Yielding Debt index – welcome to the new world order where global bond indices exist for negative-yielding bonds.
Source: Bloomberg/BNP Paribas Asset Management, as of 12/07/19
- From a low last October of just under USD 6 trillion, the value of the Bloomberg Barclays Global Aggregate Negative-Yielding Debt index has more than doubled, increasing by over USD 7 trillion over the last eight months to establish an all-time record of USD 13.2 trillion in late June.
- The rise of the volume of negative-yielding debt instruments is explained by the recent ‘pivot’ by central banks away from a normalisation of monetary policy (i.e. raising official interest rates from the low levels associated with non-conventional monetary policy) to rate cuts. The justification for this reversal in monetary policy includes factors such as the fears over the negative repercussions of trade tensions and the continuing absence of inflation pressures in developed economies.
- The current situation is a manifestation of the inability of global financial markets to emerge from the era of ultra-low bond yields that central banks engineered in the wake of the global financial crisis.
- Non-conventional policies pursued by central banks in recent years have led neither to a rise in sluggish rates of economic growth nor to an end in the disinflationary trends within the global economy.
- If non-conventional monetary policy has shown itself to be ineffective so far and is not without risk (e.g. misallocations of capital, fuelling of inequality), does it make sense to pursue it further? This question, dear reader, will be the subject of future posts on this blog.
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