During the pandemic, issuance of negative-yielding debt—when purchasers pay for the privilege of locking in a loss—jumped from a pandemic low of $7.6 trillion in March 2020 to a pandemic peak of $18.2 trillion in December as investors sought safety. But that risk aversion appears to be ebbing as the global economy reflates; through Monday, the issuance of negative-yielding debt has declined to $12.7 trillion.
That decline, which has followed the rise of mass vaccinations, has to do with yields rising from their pandemic lows and the re-emergence of risk premiums attached to bond yields (price moves inversely to yield) as global economies begin to reflate.
This is particularly true in Europe, where the yield on the benchmark German 10-year bund has increased from a negative-rate low of minus-0.640 on Nov. 2 to a pandemic-era high of minus-0.103 on May 18. On Tuesday morning, the 10-year bund was trading at minus-0.166.
While there is some way to go before the all clear can be called, growth forecasts for the European Union expect gross domestic product to expand by 4.4% this year and by 4.3% next year.
To be sure, negative-yielding debt is not going away and will most likely be a feature of the global financial landscape for the foreseeable future. But the ebbing of such issuance is another positive sign that the recovery of the global economy is now firmly underway.
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