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Prudential of the US warns of ‘systemic risk’ from low bond yields 

August 29, 2016

Robin Wigglesworth, The Financial TImes

The chief executive of Prudential’s $1tn asset management arm has said low interest rates have led to “substantial systemic risks” for the financial system, adding to the chorus of big investors concerned over the swelling universe of negative yielding debt.

Low or even negative interest rates, coupled with aggressive bond-buying programmes from the central banks of Japan, the eurozone and the UK, have helped push borrowing costs down to unprecedented levels with more than $13tn of bonds now trading at sub-zero yields.

While cheap borrowing costs have been a boon to indebted governments, companies and households around the world, there is growing disquiet that the side effects are becoming increasingly pernicious, winnowing out returns for savers and suppressing economic growth by encouraging thrift rather than spending.

When asked if he could say something positive about low bond yields, David Hunt, chief executive of PGIM, the money management arm of US insurer Prudential Financial that controls about $1tn, paused for eight seconds before replying: “That’s very difficult.” Read more

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