Government bond yields around the world are low.
In many cases, negative.
Deutsche Bank has a handy chart for that:
And while a lot of these investors are coping with negative policy rates — meaning cash parked at central banks is charged a small fee — or are dealing with an ever-shrinking supply of bonds to buy against central banks doing big asset purchase programs, these returns are still not attractive.
I mean, how could they be? The world “return” implies you get something back — i.e. more money back after forfeiting your ability to do anything with that money for a period of time.
In this case, buying a bond with a negative yield means you’ve forfeited that right (privilege? unclear: markets are weird) presumably for something else, something better? Strange times.
Either way, David Rosenberg at Gluskin Sheff is not at all excited by taking on this kind of risk (even if this debt is considered the safest you can put your money in).
Here’s Rosenberg in a note on Monday morning:
Core government bond markets have a bid, with yields down about two basis points across Germany, France, the Netherlands, Sweden, and the U.K. The 10-year German bund is now within 19 basis points of joining the Japanese government bonds in negative yield terrain — bunds have rallied now for a fourth day in a row, the longest streak of the year.
Call it return-free risk, if you will.
All it takes now is a five basis point rise in the 10-year bund to deliver a negative return in the German bond market; all it takes in Japan to generate a negative JGB return for the 10-year maturity is for the yield to do nothing at all. In the US, it only takes a 40 basis point move up, and adjusted for core inflation, the 10-year Treasury yield is -40 basis in real terms!
Never before has losing money in an asset class felt so good.
“Return-free risk” has a really great ring to it.