Central banks of the world are gradually starting to curtail their incentives and move on to tightening monetary policy, but so far this has no effect on financial conditions.
One of the main players in the market is the ECB. The Central Bank has become, in fact, a hedge fund that buys debt securities, regardless of their price.
Given the printing press, which is still operating at full capacity, it is not surprising that the so-called investment portfolio has grown to almost $ 2 trillion.
It is not surprising that all these purchases led to a serious change in the market itself – to a significant drop in yields.
Given the fact that the US Federal Reserve raised rates to a nine-year high and is going to raise them further, and the ECB, in turn, announced the beginning of the so-called tapering – a gradual reduction in asset purchases, investors are entitled to expect normalization of returns on the debt market, but this is not going on.
As experts at the Fitch rating agency recently noted, despite a gradual tightening of policies by leading central banks in the world, the volume of bonds with negative interest rates worldwide rose from $ 9.3 trillion a year earlier to $ 9.7 trillion.
"The total volume of global sovereign debt with negative returns remains at elevated levels, despite the plan of the European Central Bank (ECB) to reduce monthly asset purchases amid an improvement in the eurozone economy."
As of December 4, 2017, such assets amounted to $ 9.7 trillion. For comparison, May 31, 2017 – $ 9.5 trillion, and $ 9.3 trillion a year earlier. Eurozone GDP growth in 2017 exceeded Fitch's initial expectations, and momentum is expected to continue through 2018.
The improvement in growth has led the ECB to slow down the pace of asset purchases to 30 billion euros per month starting in January 2018. However, these changes did not lead to a significantly higher return on government debt in the eurozone. "
Of course, negative returns in the eurozone have a logical explanation. The fact is that even if the European Central Bank buys bonds for only 30 billion euros a month, next year it will still buy 2.2 times more than the total volume of the new bond issue planned for 2018.
And, of course, fund managers most likely simply believe that a “bubble” in the debt market is much safer than any other “bubbles” where risks are simply prohibitive.