Negative-yielding government bonds have been a significant force for a superb year of investment returns for both stocks and bonds, and many are welcoming their recent decline as an indicator of what will support the next leg up in valuations. Yet the evidence remains mixed, suggesting a more nuanced approach to longer-term investing.

The growth and persistence of negative-yielding debt in 2019 has done more than deliver attractive price appreciation on government bonds. It has pushed investors to take on more risk, pushing up the price of assets from investment-grade and high-yield corporate bonds to emerging markets to, of course, equities. It has also encouraged companies to intensify their financial engineering, often involving debt issuance to pay for stock buybacks. And it has supported a range of mergers and acquisitions.

All of this is best summarized by the historically unusual coincidence of a nearly 30% gain in the S&P 500 stock index, a still-robust 15% for the Bloomberg Barclays Bond Index and minuscule volatility as measured by the VIX index.

Yet many investors have become uncomfortable with the possibility, to quote Herbert Stein, chairman of the Council of Economic Advisers under U.S. Presidents Richard Nixon and Gerald Ford, that “If something cannot go on forever, it will stop.”

Already, the global pool of negative-yielding bonds has fallen from its high of nearly $18 trillion in the middle of the year to $11 trillion now. But two forces are restraining investor behavior when it comes to adjusting market exposures accordingly — that is, retaining a claim on the upside while increasing downside protection. First, a technically driven momentum for markets that favors higher risk assets and relatively well-behaved bonds is continuing for now; and second, the recent fall in negative-yielding bonds indicates a promising handoff in market drivers that can push risk assets higher in 2020, if not beyond.

This second factor is especially important for longer-term investors who tend to shy away from tactical investment positioning. It centers on the encouraging notion that the drop in negative-yielding bonds is due to prospects for higher global growth that will also develop stronger momentum because of greater fiscal stimulus — a development that would involve the long-delayed shift from liquidity support for markets to one based on fundamentals.

As much as I would like to buy wholeheartedly into this explanation, and as much as I remain upbeat about the market short term, the evidence for such longer-term optimism is far from overwhelming. For now, the pickup in global growth seems much more cyclical than secular and structural; and systemically important countries with fiscal room for meaningful budget stimulus, such as Germany, show little willingness to do so.

The gradual erosion in central banks’ appetite for the current negative-interest-rate regime is as important a reason as others for the decline in the pool of negative-yielding bonds. And the longer-term implications for markets are less comforting.

Confronted by the institutional and socio-political context discussed in my 2016 book “The Only Game in Town,” including the cascading series of unintended consequences and collateral damage of over-reliance on central banks, more and more people are coming to the realization that negative rates eat away at economic dynamism and genuine financial stability by:

- Undermining bank intermediation and encouraging excessive risk-taking by nonbanks.
- Eroding the financial viability and safe management of new long-term financial protection products for households such as life insurance and retirement plans, which accentuates other incentives for higher savings.
- Encouraging excessive corporate debt issuance, which sustains zombie companies and contributes to economy-wide misallocation of resources.

While a large-scale retreat by central banks from ultra-low rates and accommodating balance sheet policies does not appear imminent, the bar is higher for another round of significant monetary policy loosening, especially when it comes to the extent of monetary stimulus in 2019. Indeed, without the type of a policy handoff that others and I have been writing about for a while — from excessive reliance on unconventional central bank measures to a more comprehensive pro-growth policy stance from governments — the risk will increase during 2020 that lower liquidity support for markets will not be sufficiently matched by improving fundamentals. This poses a conundrum for long-term investors, who can’t simply hope that their legitimate short-term optimism will extend to the full horizon.

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include "The Only Game in Town" and "When Markets Collide."