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For some time now, investors have seen the appearance of negative yields on certain bonds around the world.

The Bank of Japan (BoJ) and the European Central Bank (ECB) even lowered their benchmark rates into negative territory in order to stimulate growth and increase inflation.

A negative yield means that the holder must pay the issuer, and not vice-versa. Ultimately, central banks hope that negative yields will encourage banks to lend more, thereby stimulating the economy.

As can be seen in the table below, investors now have to pay to hold a government bond in some countries.

2 years5 years10 years30 years
United States0,87 %1,35 %1,87 %2,64 %
Canada0,56 %0,70 %1,24 %2,03 %
Germany– 0,49 %– 0,31 %0,18 %0,86 %
France– 0,43 %– 0,18 %0,54 %1,43 %
Italy0,01 %0,32 %1,30 %2,43 %
Switzerland– 1,08 %– 0,86 %– 0,38 %0,20 %
Sweden– 0,68 %– 0,16 %0,46 % n/a
Great Britain0,47 %0,88 %1,45 %2,32 %
Japan– 0,23 %– 0,24 %– 0,09 %0,51 %


Anemic growth

How did we get here? We have reached this point because of persistently weak economic growth in many developed countries since the financial crisis. The quantitative easing measures of the past few years to boost growth and inflation have had little success, and the programs put in place in Europe, the United States and Japan to grow GDP have produced only mixed results. In some cases, the debt-to-GDP ratio is over 300%!

The future of interest rates

During the last few years, central banks have employed many unconventional methods to kick-start their economies and inflation, but these efforts have been largely unsuccessful judging by current growth and inflation levels. Low rates heavily penalize savers who, in an uncertain environment, tend to save rather than spend. As long as global growth and inflation remain at anemic levels, rates will stagnate. A strong and sustained economic recovery over many quarters will be necessary to reverse the trend.

If you have any questions about the impact of this market situation on your portfolio and your return potential, don’t hesitate to contact your Wealth Management Advisor.


Max D’Alessandro, CFA
Senior Portfolio Manager, Fixed Income and Alternative Strategies

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