Softbank CIBC International: Negative Yield Run Stokes Bond Buy up
Selling bonds is all the rage both for private companies and governments right now, as across the globe speculators are buying up practically anything showing a yield.
TOKYO, Japan - May 24, 2016 - PRLog -- Big name financial houses are predicting that the state of world bonds will be so good this year that we are probably in for record-low yields. There is currently over nine trillion dollars' worth of negative-yielding securities which seems to be the motivating factor behind the observed bond binge.
"There's a growing strategy trend used by investors in current economic conditions of attempting to collect yield by purchasing credit, extending maturities or a mixture of the two," said Tony Harris - Senior VP Equity Trading at Softbank CIBC International. "It's happening due to a significant lack of yield in a large share of governmental debt, or even negative yield," he added.
High Risk - High Reward
Returns have been sweetened by the central banks as they attempt to coax investors into more dangerous ventures, and this has been relatively successful. The flip side, however, is that business defaults and interest rate hikes have left the investor increasingly exposed.
Depending on the outcome of Federal Reserve decisions, investors may be at risk, especially considering that the broad global bond market's duration of effectiveness has soared to new peaks in May.
"There is no need to fear the Federal Reserve," said Harris on his blog on Friday, "as long as investors are well informed and do their homework they will make the right choices concerning purchasing of credit and extending maturities."
The excessive demand is encouraging government borrowers. As fund managers, central banks and other organizations made frenzied moves into a 10-year U.S. debt auction Wednesday, those who purchased through direct traders landed a high percentage of the notes which were sold at extremely low yield.
Many European governments are now offering super long-term debt, including France and Belgium. Spain has joined the club, selling 50-year securities worth over 11 billion euros. Italy may also follow suit very soon as their debt department announced last week that they were "analysing demand for ultra-long bonds."
The European action in the long-term bond market comes after Japan had little issues selling its 30-year securities despite the hedge fund supremo Adam Fisher calling them "a massively overpriced bond."
Meanwhile, in the United States, the binge continues with the total issuance of debt going past the $40 billion mark on Monday.
Softbank CIBC International