Here’s Why You Should Care About The Tumbling Stock Of Negatively Yielding Bonds

Here’s Why You Should Care About The Tumbling Stock Of Negatively Yielding Bonds
Andrew Rummer

about 2 years ago1 min

The total value of bonds carrying a negative yield – meaning that people holding the debt until maturity will lose money on their investment – has plummeted in recent weeks as central banks’ moves to normalize interest rates ends a bizarre period for markets.

The chart above shows how the outstanding global amount of bonds with a negative yield peaked at more than $18 trillion at the end of 2020, before steadily creeping lower over the course of 2021, and then crashing in the first weeks of 2022 as the Bank of England raised interest rates and the US Federal Reserve and the European Central Bank made noises about following suit.

The miniscule returns available in bonds over the past few years have pushed more and more investor cash into riskier parts of the financial markets – and benefited stocks in particular. As the returns available from bonds climb, that process will reverse, sucking money from stocks and other riskier investments.

Few charts show so clearly the change in sentiment we’ve witnessed in the past couple of months. And while plenty of people will welcome a return to more normal yields in the bond markets, it’s certainly removing a key support for stocks as we head into 2022.



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