Over a third of world’s government bonds worth $13 trillion offer negative returns

MUMBAI: For the first time ever, nearly $13 trillion worth of government bonds worldwide — representing more than a third of all government debt — have negative interest rates. Returns or yields on bonds drop as their prices rise following an increase in demand. Demand for bonds and gold has soared as central banks kept interest rates down and investors rushed to safe haven investments following Brexit, or UK's vote to leave the European Union.

The yield on 10-year US treasuries fell to an all-time low of 1.34% while the yield on a 30-year bond fell to 2.15%. In the UK, the 10-year yield fell to less than one percentage point to 0.77%. In Japan, almost 90% of the sovereign debt is trading at negative yields. In Switzerland, the return on even 50-year bonds is negative.

But even as global investors look for safe havens, Indian issuers are finding investors. Baring Private Equity-promoted HT Global Solutions, a holding company for Hexaware Technologies, has seen its $300-million 5-year, high-yield bond offering being oversubscribed by over five times. The sub-investment grade (BB- rated) issue sold bonds with a yield of up to 7.12% soon after the Brexit vote results were announced.

"Given that right kind of credit will draw first-in-class investors was evidenced by the book being oversubscribed over six times," said Amrish Baliga, MD, corporate finance, Deutsche Bank India. According to Baliga, this is the right time for Indian issuers to raise funds. "Given that interest rates are low globally, asset valuations are driven down on sentiment, we believe it's an opportune time for Indian issuers to evaluate international bond markets and bridge that gap," said Baliga.

The negative interests are a sign of desperation by central banks in the West to spur investment and consumption in a bid to revive growth. According to economists, the economies with negative interest rates have entered unchartered territory. RBI governor Raghuram Rajan said in an interview that consumers were not behaving as expected in response to lower rates. Savers were finding that their money would now earn an even lower return so were hoarding it even more to have enough for retirement. Also, the easy money was keeping inefficient companies alive when in fact they would have shut down under a normal interest rate regime.