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Low Rates Leading To A Surge In Bond Selling



Low Rates Leading To A Surge In Bond Selling

Bond selling is at an all-time high right now, and this is not only happening in the U.S.

Global bonds of all types, including debt, securities, company bonds, and others were selling quickly as negatively yielding securities grew.

Rates have reached record lows, prompting buyers to grab up everything that they can.

Portugal, Spain, and the U.S. all sold massive amounts of long-term debt.

This week has seen very high numbers on corporate borrowing. The U.S. and Europe did well in this sector.

Japan went and sold notes for a 30-year term at a rate of 0.319%, making them very attractive to buyers, given that this rate hit a record for a low point.

The amount of securities that have a negative yield has grown so much that the total value of these bonds has gone over $9 trillion.

This rise is partly due to the Bank of Japan and the European Central Bank going in the negative with interest rates.

Speculation is that the global bond market will have a great 2016 with all of these purchases and the reduction in global debt supply.

Yields are expected to be at an all-time low.

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10-Year Rates

In the 2nd half of 2006, global yields maxed at about 4.5%.

It has been a rollercoaster ride since then, spiking and then falling drastically, but the overall trend has been downward.

Thus far in 2016, global yields have dropped to a record low of about 1.25%.

global yields

 It is unclear yet as to how much lower they will go, but in the meantime, bond selling is on a massive binge with these incredibly low rates.

Investors Going Beyond the Norm

Investors are going for yield and the avenues that they will pursue to get it have expanded beyond what they would normally do.

Some investors are buying credit while others are going for longer maturity periods. Some investors are even doing both.

What Investors Risk

When buying debt, one of the worst things that can happen is higher rates.

Losses will only grow if prices go up, so they are counting on them to stay small.

Investors are also more easily convinced to take greater risks with their investments, something that has been difficult for banks to pull off in the past.

It seems easier now to get investors out of their comfort zone, which is good for the banks.

The other potential occurrence that could hand investors massive losses is if there are corporate defaults.

To recap, here are the risks investors face:

  • Corporate defaults
  • Long-term maturation risks if interest rates increase
  • Drop in demand
  • Other risks associated with debt buying

Duration Issues

Global bond market durations have grown over the last 20 years, now sitting at an all-time high.

Current length is approximately 6.8.

Investors will be set to gain if interest rates remain low, so they are watching the Federal Reserve very carefully.

All of this buying and selling seems chaotic for the moment.

The demand is still high, and should interest rates continue at their weak points; the market will undoubtedly continue as-is if not rise even higher.

Treasury Department Sales

10-year U.S. debt did well at auction, with high levels of bidding going on. The Treasury Department is poised to sell 30-year bonds and a lot of them. The total value of the bonds they are set to sell is around $15 billion.

Portuguese 10-year securities sold beyond the target, causing them to do well versus other countries on the euro.

It seems that Portuguese bonds are doing quite well with the extra amounts of 10-year sold securities.

Spain and Japan

Long-term relationships appear to be the thing in Europe and Asia, with Spain selling bonds with a 50-year term.

France and Belgium also followed similar term bond sales.

Spain only issued about 3 billion euros worth, but the delivery was over 10 billion euros worth.

Italy may get into the 50-year bond game as well, pending the results of demand evaluation.

Japan sold 30-year bonds easily, although some said they were way too expensive.

Even those opinions from veterans in the game did nothing to thwart the sales.

Negative yields on Japanese debt will come from any 15-year or fewer maturation periods.

Japan bought over $45 billion in U.S. sovereign bonds.

The U.S.

They issued over $41 billion in debt this week alone.

So much debt has changed hands since interest rates reached their record lows.

There is no fear of debt and bond buying at the moment, and that fearless attitude is expected to continue for some time.


To recap significant moves by several countries over the last week:

  • U.S. sells over $41 billion in debt issuance
  • Japan sells 30-year bonds with no problem
  • Spain issues 50-year bonds, with issue of orders going over 7 billion euros
  • Italy considers doing 50-year bonds themselves
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