DAILY SKETCH - Financial repression

    • Daily sketch

Financial repression describes the situation on global bond markets, where the required yields to maturity of government bonds of many countries are negative. If an investor buys such a bond and holds it until maturity, he will make a loss with certainty.

DAILY SKETCH - Financial repression

This situation has persisted for several years and is the result of unprecedented monetary incentives of key central banks, respectively the quantitative release. This situation will almost certainly continue in the coming years, as government debt across major economies is at all-time highs and government finances would simply not be able to absorb significantly higher interest costs.

Czech government bonds are still doing relatively well in this respect, as virtually the entire Czech yield curve is currently positive. Even so, Czech yields to maturity are close to all-time lows and therefore we continue to keep the duration of the Czech government bond sub-portfolio significantly lower than the benchmark to protect our investors' capital from possible further realization of interest rate risk, i.e. continuation of the increase of the required yields to maturity, respectively the decline in market prices of government bonds. 

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


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