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Vanishing Sovereign Bond Yields Around the Developed World 

July 28, 2016

Tom Lydon, NASDAQ

Contrary to the expectations of some of the world's most respected bond managers, bond prices continue to rise and yields fall to almost inconceivable levels. According to the Financial Times, on July 5th 2016, the yield on the Swiss government bonds with 50 year maturity hit a low of -0.12%.

Think about that - such is the global environment that investors would rather lend their money to the Swiss government for 50 years, knowing they will lose money on the investment.  Is this a complete loss of faith in equity markets or are there other realities to consider?

One factor at play is the Basel III regulations that were put in place for European banks after the 2008-09 financial crisis. An important component is the liquidity coverage ratio (LCR) requirement to ensure large banks have enough cash-like assets to ride out short term liquidity disruptions. This is the percentage of assets that need to be in highly liquid instruments such as sovereign bonds or corporate debt to cover net outflows over a 30 day stress period. Read more

 

 

 
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