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In The Long Run: Bonds With Negative Yields

By Colin LloydBondsSep 18, 2016 12:32
uk.investing.com/analysis/in-the-long-run-200154066
In The Long Run: Bonds With Negative Yields
By Colin Lloyd   |  Sep 18, 2016 12:32
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  • 54% of government bonds offered negative yields at the end of August
  • Corporate bond spreads did not widen during last week’s decline in government bonds
  • Since July the dividend yield on the S&P 500 has been higher than the yield on US 30-year bonds
  • In a ZIRP to NIRP world the “capital” risk of government bonds may be under-estimated

Back in 2010 I switched out of fixed income securities. I was much too early! Fortunately I had other investments which allowed me to benefit from the extraordinary rally in government bonds, driven by the central bank quantitative easing (QE) policies.

In the aftermath of Brexit the total outstanding amount of bonds with negative yields hit $13trln – that still leaves $32trln which offers a positive return. This is alarming nonetheless, according to an article by ZeroHedge, a 1% rise in yields would equate to a mark-to-market loss of $2.4trln. The chart below shows the capital impact of a 1% yield change for different categories of bonds:-

To read the entire report, please click on the PDF file below:

In The Long Run: Bonds With Negative Yields
 

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In The Long Run: Bonds With Negative Yields

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