The sum of government bonds worldwide that carry negative yields was $9.9 trillion in late April, with Japan accounting for two-thirds of the total and the rest in Europe, Fitch Ratings said on Wednesday. Of that total on April 25, $6.8 trillion were in long-term bonds and $3.1 trillion short-dated maturities. Negative yielding government debt was almost non-existent before central banks adopted extraordinary policies such as massive bond purchases in the wake of the 2008-2009 global financial crisis.
The hefty amount of negative-yielding sovereign bonds in late April, due to unconventional policies adopted by the Bank of Japan and the European Central Bank, has complicated the task of banks, insurance companies, money market mutual funds and other investors, the rating agency said in a report. Because this negative-yielding debt overseas offers no income, investors will look for assets with positive returns, Fitch said. The consequences of this search for yields from investors have been more risk-taking and rising demand for higher-yielding US government bonds, according to Fitch.
"The desire to generate better returns could lead banks, insurance companies, money funds and other investors to lengthen maturities or lower the average credit quality of their portfolios, contributing to higher risk in the global financial system," it said in a statement. The nearly $10 trillion in negative-yielding Japanese and European bonds were yielding negative 24 basis points or negative $24 billion annually. Using 2011 yield levels, this amount of debt would have yielded 1.23 percent or $122 billion. At 2006 yield levels, it would have yielded 1.83 percent or $180 billion, Fitch said. The demand for higher-yielding US Treasuries "could keep long-term yields low, potentially complicating the Fed's efforts to raise short-term interest rates later this year," Fitch said.