The adoption of negative interest rate policy by the European Central Bank and Bank of Japan, among others, has had a dramatic impact on bond markets. The chart from Bank of America-Merrill Lynch (BAML) breaks down the share of the global fixed income debt that currently trades with a positive yield compared to those yielding below zero.
According to calculations from BAML’s European credit strategy team, 23% of bonds globally yield less than 0% at present, up substantially on 13% level seen the beginning of the year. Based on the chart, that equates to around $9 trillion in bonds that are currently trading with negative yields, a figure that could grow even larger should the current trend be maintained.
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“Global debt has grown by $57 trillion and no major economy has decreased its debt-to-GDP ratio since 2007. High government debt in advanced economies, mounting household debt, and the rapid rise of China’s debt are areas of potential concern. Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points (see Exhibit 1 below). That poses new risks to financial stability and may undermine global economic growth.
Exhibit 1. Since the Great Recession, global debt has increased by $57 trillion, outpacing world GDP growth.
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