CHART OF THE WEEK - Financial repression

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The term financial repression describes a situation in which we have been on financial markets recently. It regards negative interest rates, respectively negative yields to maturity on government bonds and exceptionally also corporate bonds, especially in the Eurozone.

CHART OF THE WEEK - Financial repression
Source: Allianz Global Investors

When the yield to maturity is negative, it means that if investors will hold the bond till its maturity, they will certainly realize a loss. One thing is that we have to deal with negative real yields, i.e. nominal yields adjusted for inflation. However even a bigger problem is, and this is showed in the first table, that on developed markets the majority of government bonds bear also a negative nominal yield. For example in Germany government bonds up to the maturity of 20 years bear negative nominal yields. Therefore we have bonds in our investment portfolios significantly underweighted against benchmarks because we expect that their appreciation will be rather weak in the upcoming years. That is why investors should prefer equities and alternative investments.


Michal Stupavský
investment strategist of Conseq Investment Management, a.s.