Dubai: The benchmark 10-year Japanese government bond yield fell below zero for the first time on record, joining peers in Switzerland and Frankfurt, as a tumble in Tokyo shares boosted demand for safe-haven debt.
This has been the most dramatic reaction ever since the Bank of Japan surprisingly decided on negative interest rate last week. Japan’s 10-year bond yield fell to as low as minus 0.035 per cent, an unprecedented low for such a maturity in a Group-of-Seven economy.
“Investors are not looking for yields, but they are looking to options to safely park their capital,” Nadi Bargouti, managing director asset management, Emirates Investment Bank told Gulf News. Negative yields are not specific to Japan, but more than $7 trillion (Dh25.69 trillion) of global government debt is trading in negative yields.
“This shows the kind of economic environment that we are living in today,” Bargouti said, adding “there is a sense of instability, there is a fear of the unknown.”
Switzerland lowered its interest rate to -0.75 per cent in December while the European Central Bank dropped their rates into negative terrirotry (-0.1) in June of 2014. Negative interest rates effectively eliminate any chance on a return on the bank’s bonds, which is viewed as a way to encourage corporate spending, thereby stimulating the economy.
Negative long-term yields are a headache for relatively conservative investors such as pension funds, whose returns from relatively safe investments are evaporating. US 10-year Treasury yields meanwhile fell to a one-year low at around 1.68 per cent, but as pressure released on Tuesday they edged up to 1.75 per cent.
