Negative yielding debt hit a record $15 trillion this week
As central banks around the world continue to ease monetary policy, the global bond surge has morphed into something of a bubble over the past ten months. Yield curves are flattening and we're starting to see some remarkable situations like in Switzerland and Germany - where the entire sovereign curve has turned negative.
Mind you, this is even before the SNB and ECB has announced any policy action.
The value of negative yielding debt hit a record $15 trillion this week - up by $1 trillion in just two days on Monday. If you exclude the US from the picture, roughly 44% (!) of global bonds are trading at negative yields.
The scary thought in all of this is that the global economic outlook isn't likely to improve any time soon over the next 12 to 24 months. That means central banks are still going to ease monetary policy further and bonds will continue to surge - pushing yields lower.
So, where's the bargain in all of this if you're an investor/trader?
Initial instincts point towards gold as being the likely beneficiary in all of this.
In a time where global central banks are worried about deflationary pressures and negative yielding bonds are at a record, it makes gold an attractive asset to hold; also considering its allure as a haven asset has somewhat returned.
The other thought is that should the global economy continue down this path towards a possible recession, Treasuries may still be viewed as a cheap investment for now.
If the Fed is forced to work towards 50-100 bps rate cuts over the next year, Treasury yields still have a long way to fall from current levels to price in that outlook.
I still don't believe there's a need for the Fed to act too hastily just yet but you can't rule out global economic developments worsening at an accelerated pace and thus, forcing their hand if need be over the next year or so.
