Negative-yielding debt reaches insane new highs: Yields on around USD 15 tn of sovereign bonds — equal to a quarter of the global market — are now in negative territory, according to a CNBC report citing Deutsche Bank research. This number has almost trebled since October 2018 when USD 5.7 tn of government debt was trading at negative yields. Rates plunged this week as fears of a global economic recession grew and central banks stepped up monetary easing. There are now 12 countries whose 10-year notes yield negative rates, while Irish, Spanish and Portuguese 10-years — countries that just a few years were mired in sovereign debt crises — are barely above 0%.

What’s with the negative yields? Bond prices have surged this month as tanking stock prices cause investors to flee to safe haven assets. This has caused yields to plunge in many developed economies: the greater demand for bonds, the higher the price and the lower the yield. This, however, has happened many times before, without causing yields to drop into negative territory. What makes this time different has to do with over a decade of loose monetary policy in advanced economies: the huge bond-buying programs launched in the aftermath of 2008 and years of near-zero (or sub-zero as is the case in Japan and the Eurozone) deposit rates have placed huge downwards pressure on yields. And with further easing almost guaranteed in the US and the Eurozone, yields can be expected to fall even further.

Why would investors pay to hold government debt? First and foremost, a willingness to actually pay governments to borrow money evidences a growing desperation among investors for protective assets. At a time when the global economy looks increasingly likely to tip into a recession, many are exiting riskier asset classes in search of safety — even if that means paying for the privilege. Secondly — and perhaps counterintuitively — it is actually possible to generate a profit from a negative-yielding bond should its price continue to rise. Markets are increasingly confident that it is only a matter of time before the world’s major central banks restart their bond-buying programs, providing additional incentive for investors to hold onto their bonds in the hope of realising a profit.