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Bond market risks just keep piling up 

September 14, 2016

Philip Baker, Financial Review

According to ratings agency Fitch Ratings, investors are out of pocket to the tune of more than $US500 billion in annual income as bond yields around the world fell to historic lows.

"Relative to yields available in 2011, global investors are forgoing over $US500 billion in annual income on $US38 trillion in currently outstanding bonds as a result of the collapse in sovereign yields," said Fitch Ratings in a report released in early September.

On the surface it might not feel so bad for income investors because overall returns from the safe haven sectors have held up well thanks to bond prices that kept rising as yields dropped (bond yields and prices move in the opposite direction).

Fitch worked out that any investment-grade sovereign bond market with a minimum of  $US50 billion in debt outstanding between July 2011 and July 2016 endured a drop in the yield on their benchmark 10 year bond issue to 1.17 per cent from 3.87 per cent in July 2011, as the accompanying chart shows. Read more

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