There's a multitrillion-dollar black hole growing at the heart of the world's financial markets. Negative-yielding debt -- bonds worth less, not more, if held to maturity -- is spreading to more corners of the bond universe, destroying potential returns for investors and turning the system as we know it on its head. Now that it looks like sub-zero bonds are here to stay, there's even more hand-wringing about the effects for mom-and-pop savers, pensioners, investors, buyout firms and governments.
[...] Negative-yielding debt topped $13 trillion in June, having doubled since December, and now makes up around 25% of global debt. In Germany, 85% of the government bond market is under water. That means investors effectively pay the German government 0.2% for the privilege of buying its benchmark bonds; the government keeps 2 euros for every 1,000 euros borrowed over a period of 10 years. The U.S. is one of the few outliers, with none of its $16 trillion debt pile yielding less than zero, but across the world, strategists are warning that the problem may get worse.
(Score: 2, Interesting) by Anonymous Coward on Sunday July 14 2019, @03:25PM
Deflation in and of itself isn't bad, except to people with some of the currently popular economic theories like neo-Keynsians and MMTers.
In truth, deflation in and of itself isn't a problem. It's happened a lot throughout history, albeit mostly before everyone switched to fiat money. Deflation caused by things like, say, improved logistics reducing costs allowing for lower prices? That's good stuff, except to the always-inflationists. It benefits everyone who needs to buy stuff (ie. everyone), and the only people it can really hurt are the people who only make money off of lending, especially if fractional-reserve is involved (sad, considering how much of the Great Depression's problem was buying on margin, that we seem incapable of learning from history). Creditors don't like this shit, and as we saw in the bailouts last decade, guess who runs the government?
The deflation this kind of negative-return bonds indicates is another story, though. That's being caused by manipulating the money supply. This is the bad stuff we need to worry about, because the only people it benefits are the people who get the new money first. Namely governments and the financial sector. Everyone else loses in this situation, but it's about the only way the governments can keep going with their deficit spending (interest on debt is a killer in modern government budgets). So it's going to happen anyway, because guess who prints the money?