Chart of the week

On 28 June 2019, the value of negative-yielding bonds stood at almost USD 13 trillion, compared with approximately USD 8 trillion on 31 December 2018. This represents almost a quarter of ‘creditworthy’ bonds, a level last seen in June 2016.

OUR ANALYSIS

Both the Federal Reserve’s decision to ease monetary policy and Mario Draghi’s dovish statements at the Sintra central banking forum have helped drive bond yields lower for an increasing number of issuers, to the point of pushing a greater number of bonds into negative-yielding territory. 10-year French treasuries are now no exception.

So why do investors buy these bonds? Some are required to hold them for regulatory reasons, while others expect yields to fall further, which pushes bond prices up.  Others want to invest exclusively in risk-free assets. Whatever the reason, the bizarre world of negative yielding bonds is all the more so since inflation rates are positive. As a result, 10-year German Bund purchasers are now ‘receiving’ a real yield of -1.4% !

The opinion expressed above is dated July 18th, 2019, and liable to change.

This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS.