Daily Management Review

Fitch Rating says Global Bond Yield Plunge Forces Investors to Miss put on $500 Billion


Fitch Rating says Global Bond Yield Plunge Forces Investors to Miss put on $500 Billion
The plunging of global bond yields as resulted in a tight squeezing of interest income for investors. However on the other side, he various government, may issuers of these bonds, are not complaining.
On a total of roughly $38 trillion in sovereign debt that is outstanding, more than $500 billion in annual income have been lost by the global investors when compared to the yields in 2011. These facts and figures were published by Fitch Ratings in a report on Wednesday.
"Cash flow benefits have effectively been transferred from global investors to sovereign issuers, as sovereign borrowing costs have dropped in response to central bank monetary stimulus," Fitch said in the report.
"This has posed new challenges for income-reliant investors, such as insurers and pension funds, while enabling governments to borrow at increasingly attractive rates," the rating agency report said.
However, the rating agency said that as newer bonds with lower interest rates were issued  and as bonds with higher coupon rates matured, only then at a slow pace can the borrowers realize benefits from the investments. Blunting the money they earned from coupon payments, investing new cash in bonds that paid lower interest rates have to be resorted to by investors who tended to buy assets and hold them onto maturity, Fitch advised in the report.

As central banks in many developed economies scooped up bonds in order to provide stimulus to their economies, around the world there has a plummeting of government bond yields, those which move inversely to prices.
However many countries have been enabled to flog bonds while cutting the interest rates they have to pay to lure investors as these purchases have sparked a scramble for government debt.
Investors have effectively paid to the governments for the privilege of parking their funds as countries, including Germany and Japan, have sold bonds at negative yields at auctions. There was a fall, touching record lows, for yield on the U.S. 10-year Treasury note in July.
A flight obtain access to assets that are perceived to be safe, such as the various government bonds, has been spurred by the growing concerns about the health of the global economy.
Fitch said that given the continuation of present scenario, more governments would be potentially led to pivot to fiscal stimulus as a tool to boost economic growth over time due to the decline in bond yields.
Despite this, the various governments cannot feel safe as there are still concerns looming. The ratings agency cautioned that the general indebtedness of the governments could be enhanced and government debt levels could be pushed up significantly if there is a sustained decline in bond yields.

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