Negative interest rates are an existential threat for insurance companies, pension funds and other financial entities that need positive investment returns to survive.
As rates on government bonds have gone negative in Europe and Japan, the above companies have been big buyers of US Treasury bonds, which still (for some reason) continue to offer positive yields.
But according to a Bloomberg analysis published today, Treasuries’ positive yield has recently evaporated when the cost of hedging currency fluctuations is included. Here’s an excerpt:
Bond Market’s Big Illusion Revealed as U. S. Yields Turn Negative
For Kaoru Sekiai, getting steady returns for his pension clients in Japan used to be simple: buy U. S. Treasuries. Compared with his low-risk options at home, like Japanese government bonds, Treasuries have long offered the highest yields around. And that’s been the case even after accounting for the cost to hedge against the dollar’s ups and downs – a common practice for institutions that invest internationally.
It’s been a ‘no-brainer since forever,’ said Sekiai, a money manager at Tokyo-based DIAM Co., which oversees about $166 billion.
That truism is now a thing of the past. Last month, yields on U. S. 10-year notes turned negative for Japanese buyers who pay to eliminate currency fluctuations from their returns, something that hasn’t happened since the financial crisis. It’s even worse for euro-based investors, who are locking in sub-zero returns on Treasuries for the first time in history.
This post was published at DollarCollapse on AUGUST 9, 2016.
Follow on Twitter
Recent Comments