The world bond market took a further step towards the resemblance of Jonathan Swift’s famous island of Laputa this week, when the global stockpile of bonds with negative rates soared to $18.04 trillion on Dec. 10, Bloomberg reports. This week alone, “about $1 trillion of bonds have seen their yields turn negative … meaning 27% of the world’s investment-grade debt is now sub-zero.“ Bond yields got a boost downwards on Dec. 10 thanks to the ECB announcement of a further purchase of a half-trillion in bonds under the PEPP program. U.S. bonds are still holding above 0%, whereas in the Eurozone only Italian and Greek bonds are.
Spanish and Portuguese 10-year bonds are below 0 for the first time and yesterday Australia joined the club of short-term bonds (3 months) with negative rates.
A continuation of current central bank policy will bring the bond market to a collapse at a certain point, when investors decide that losses produced by negative yields have become too big. This will force yields to go up, bringing exactly the contrary result to central banks’ intentions and forcing a brutal hard landing of Laputa.
