If you were to buy, at random, any government bond, there is a one in three chance you’d lose money if you held onto it until it matured. That is, around a third of all developed-country government debt—or more than $7 trillion, in terms of market value—is now trading at negative yields, according to Citi. That means that investors are effectively paying borrowers to lend to them—giving away $100 and a few years later getting back $99. In the euro zone, more than half of all outstanding bonds are priced in this upside-down way, according to Tradeweb.
What gives? Bond prices move in the opposite direction to rates, so negative yields are another way to say that the prices of these bonds have risen really, really high. That reflects anxiety among investors, who are willing to lock in a small loss on their money rather than risk the chance of something worse by putting their cash into other assets. “Worry for now about the return ‘of’ your money, not the return ‘on’ it,” according to the latest note (pdf) from legendary bond investor Bill Gross.
The Brexit vote is the latest thing to spook the markets, generating a renewed rush to buy bonds issued by safe havens like Switzerland, Japan, Germany, and the US, which all recently set new records for low yields. The yield on Switzerland’s 50-year government bond recently fell below zero. Fifty years!
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