BOND MARKETS WEEKLY – Bond yield is a very rare commodity

    • Bonds

As today's chart from Bank of America shows, from a global perspective, bond yields are a very rare commodity. Approximately 20% of all bonds today bear a negative yield to maturity. This means that if investors hold these bonds until their maturity, they will certainly record a loss.

BOND MARKETS WEEKLY – Bond yield is a very rare commodity

In addition, approximately 40% of all bonds bear a yield to maturity of up to 1%. If we take into account that the average global inflation rate is currently between 2-3%, the average global real bond yield to maturity is deeply negative. This means that by holding these bonds, investors record a real loss, i.e. after taking inflation into account.

In the near future, the situation is unlikely to improve much, as all key central banks carry out massive bond purchases, thereby keeping bond yields to maturity at these low levels and market prices at all-time highs respectively. Let's just add that the market price of a bond and the bond yield to maturity are two sides of the same coin, moving against each other. When the price of a bond rises, the yield to maturity falls and vice versa.

Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.

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