Fitch - Global bond markets at risk for $3.8 trln in losses

Reuters
August 2, 2106
 
Aug 2 Bond markets across the world are at risk to lose up to $3.8 trillion if bond yields suddenly surge back to their 2011 levels from their current historic lows, Fitch Ratings said on Tuesday.
 
European and Japanese government bond yields have been in negative territory due to their central banks' adaptation of negative rate policies and expansion of bond purchases in 2016.
 
Longer-dated U.S. Treasury yields reached record lows in July in a global scramble for higher-yielding sovereign debt.
 
"As rates hit record lows, investors face growing interest rate risk. A hypothetical rapid rate rise scenario sheds light on the potential market risk faced by investors with high-quality sovereign bonds in their portfolios," Fitch Ratings said in a statement.
 
In its analysis, a hypothetical rapid reversion of yields to 2011 levels for $37.7 trillion worth of investment-grade sovereign bonds could result in market losses of as much as $3.8 trillion, it said.
 
From July 2011 to July 2016, the median yield on the 10-year government bonds among 34 countries fell by 2.70 percentage points. The median yield on one-year debt declined by 1.76 points, Fitch said.
 
On July 15, there were $11.5 trillion worth of government bonds globally which offered negative yields, which were less than the $11.7 trillion on June 27. The sum of negative-yielding bonds decreased due to the yen's rally against the dollar and a rise in Japanese government yields, according to Fitch.