When euro zone interest rates turned negative in 2014, fixed income specialist Michael Hampden-Turner recalls having to explain to baffled bond investors how they could be charged to lend money to governments.
As central banks sought to help economies through a succession of crises by making it costly to hoard cash rather than put it to work, investors soon found themselves paying many countries - and even some companies - to take their money.
"Previously, it was just getting people familiar with it, and now we've got a whole generation of traders that have never known anything but negative yields," said Hampden-Turner. "All of a sudden that's changing."More attractive returns could bring investors back to the region and boost the euro, while easing strains on banks and pension funds. Likely losers include riskier emerging and corporate bonds that were snapped up in a hunt for returns.
Less than a third of euro zone debt on Tradeweb's platform now carries a negative yield, while Deutsche Bank estimates the global pool has shrunk to less than $3 trillion for the first time since December 2015, from a 2020 peak of over $18 trillion. Blamed for a huge rise in debt and inflating housing and stock market bubbles, negative rates have also been bad news for pension funds and insurers, which use current bond yields to value future liabilities.
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