Total negative-yielding debt hits record $17.05 billion

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The global pile of negative-yielding debt reached a record size after Tuesday’s U.S. presidential election sparked a rally in global bond markets.

Bonds worth $17.05 billion are now trading with a yield below zero, according to the Bloomberg Barclays Global Negative Yielding Debt Index Market Value, surpassing the previous peak reached in August of the year last. This means that buyers are willing to pay a high enough price for the debt that they are guaranteed to suffer a loss if they hold it to maturity.

The landmark is the latest sign of burning demand for investment grade bonds, despite heavy government and corporate borrowing as they deal with the economic fallout from the Covid-19 pandemic.

Investors say bond markets were able to swallow the deluge of additional issuance, despite the deteriorating economic situation, thanks to huge asset purchase programs unveiled by central banks to counter the Covid crisis. The Bank of England was the latest to step up its stimulus, announcing An additional £150bn of government bond purchases on Thursday, while the European Central Bank is expected to follow suit with an expansion of its €1.35 billion program next month.

“Central banks have bought up more debt than governments can force them to,” said Mark Dowding, chief investment officer at BlueBay Asset Management. “That pushed yields lower despite the huge fiscal expansion.”

The pile of negative-yielding debt has more than doubled since March, when a global bond sell-off pushed yields higher. Although the value of negative-yielding bonds eclipsed last year’s record high of $17.04 billion, the sharp rise in global government and corporate issuance in recent months means they constitute slightly more a quarter of global investment-grade debt, still below 30%. achieved in 2019.

This week’s milestone, revealed in daily index data released late Thursday, comes as a closer-than-expected U.S. election boosts bonds around the world. Markets had positioned themselves for a massive fiscal stimulus package after an anticipated sweep by Democrats for the presidency and Congress, which was expected to stoke growth and inflation – driving down the price of government debt. But with Joe Biden now looking likely to be hamstrung by a Republican Senate if he wins the presidency, US Treasuries rallied as investors lowered their stimulus expectations.

Although Treasury yields remain in positive territory, gains in the world’s largest bond market have pulled prices higher elsewhere. That rally pulled a band of bond markets below zero, particularly in the euro zone, where Italian five-year yields turned negative for the first time on Thursday.

Investors say the proliferation of very low and negative yields is pushing them to seek higher-yielding debt securities in markets like Italy or in riskier asset classes, mirroring the momentum that has contributed driving stock markets higher over the past decade.

“It pushes people out of cash and high-quality assets and into taking on more risk,” Dowding said. “People are looking for a return above nothing.”

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