www.marketwatch.com/story/bill-gross-negative-yields-will-lead-to-supernova-like-market-implosion-2016-06-10
Gross says negative yields will lead to ‘supernova’-like market implosion
MarketWatch photo illustration/Bloomberg
As
yields on government bonds across the globe march toward fresh record
lows, bond guru Bill Gross continues to sound the alarm.
Early Friday, he tweeted via Janus Capital that global yields are their lowest in “500 years of recorded history.” The fixed-income expert, who manages the firm’s unconstrained bond strategy, cautioned that record-breaking low yields and negative interest rates emerging in places like Japan and parts of Europe could have explosive implications. And not in a good way for global markets, as his tweet suggests:
Indeed, the amount of sovereign debt bearing negative yields surpassed $10 trillion for the first time in May, according to Fitch Ratings. That means lenders are willing to pay government borrowers to park their money, and the amount of negative debt is growing.
On Friday, global yields continued their descent, with the yield on the 10-year German bond
TMBMKDE-10Y, +0.00%
tumbling to 0.015%, according
to Tradeweb, a record low that leaves the German benchmark bond a hair
away from negative territory. The yield on Britain’s equivalent, known
as the gilt
TMBMKGB-10Y, +0.00%
fell to a historic low of 1.229%. And overnight Friday, the Japanese 10-year benchmark yield touched a record low of negative 0.155%
European yields taking the elevator lower has put pressure on Treasury yields, with the U.S. benchmark 10-year note TMUBMUSD10Y, +1.62% touching 1.63% early Friday in New York—its lowest yield in more than a year.
Check out: Permabear Faber is starting to sound downright bullish
Stock markets didn’t take those moves lightly, as European stocks ended sharply lower and U.S. equities didn’t fare much better. The Dow Jones Industrial Average DJIA, +0.53% finished down nearly 120 points while the S&P 500 SPX, +0.31% slipped 0.9%, falling below its psychologically significant 2,100 level on Friday.
Read: Treasury yields plummet to 3-year low amid global bond rally
Gross’s predictions of explosive results are similar to his earlier warnings, and the admonishments of other market pundits, who have cautioned that negative interest rates could have unforeseen consequences. Those include unraveling the financial markets.
In late May, Gross likened investing in negative-yielding bonds with a hope to sell them before maturity and making a profit on the difference between even lower-yielding bonds to investors “convincing themselves that they will never reach the loss-certain finish line at maturity.”
Also read: Negative interest rates put the global economy on a razor’s edge
Early Friday, he tweeted via Janus Capital that global yields are their lowest in “500 years of recorded history.” The fixed-income expert, who manages the firm’s unconstrained bond strategy, cautioned that record-breaking low yields and negative interest rates emerging in places like Japan and parts of Europe could have explosive implications. And not in a good way for global markets, as his tweet suggests:
European yields taking the elevator lower has put pressure on Treasury yields, with the U.S. benchmark 10-year note TMUBMUSD10Y, +1.62% touching 1.63% early Friday in New York—its lowest yield in more than a year.
Check out: Permabear Faber is starting to sound downright bullish
Stock markets didn’t take those moves lightly, as European stocks ended sharply lower and U.S. equities didn’t fare much better. The Dow Jones Industrial Average DJIA, +0.53% finished down nearly 120 points while the S&P 500 SPX, +0.31% slipped 0.9%, falling below its psychologically significant 2,100 level on Friday.
Read: Treasury yields plummet to 3-year low amid global bond rally
Gross’s predictions of explosive results are similar to his earlier warnings, and the admonishments of other market pundits, who have cautioned that negative interest rates could have unforeseen consequences. Those include unraveling the financial markets.
In late May, Gross likened investing in negative-yielding bonds with a hope to sell them before maturity and making a profit on the difference between even lower-yielding bonds to investors “convincing themselves that they will never reach the loss-certain finish line at maturity.”
Also read: Negative interest rates put the global economy on a razor’s edge
