Traders responded by extending a rally that’s trimmed 26 basis points off benchmark Treasury yields in the past month. That followed ECB President Christine Lagarde saying policy must remain “highly accommodative” with inflation struggling to stay much above 1%.
“Buy negative-yielding bonds? Absolutely,” said Bouvet. “A lot of investors get money at even more negative rates than where they invest them so they can still make money.
There’s still scope for European government bond yields to move even more negative.”
Meanwhile, the haven nature of recent demand also means many investors will be looking past price risk, accepting it as necessary to hedge their portfolios and park cash in safer securities.
‘Pop’ Higher
Back at BlackRock, Rieder reckons even if the turmoil surrounding the coronavirus drives global government bonds yields “temporarily lower,” benchmark Treasury yields will eventually rise about 30 basis points from current levels to “hover in a range around 1.8%.” That would match the Fed policy rate, stabilizing growth and inflation, he argues.
BlackRock says investors can earn 5% returns this year by barbelling high-quality bonds against riskier equity and alternative assets.
History is arguably on the side of Rieder. Negative yields guarantee losses if held to maturity, and new investment-grade issues of bonds with sub-zero yields sold last year ended 2019 in the red. They lost investors 0.46%, compared with a gain of 1.41% for bonds issued with a positive yield, according to data compiled by Bloomberg.
“I think when this clears up we will see global yields pop higher,” said Hickmore at Aberdeen.
--With assistance from Ksenia Galouchko and Tasos Vossos.
This article was provided by Bloomberg News.