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From Safe To Risky: The World Of Bonds Is Turning Upside Down

Bank of England

Traditionally viewed as a safe haven, the world of bonds has never looked more unstable as negative rates change financial instruments and monetary policy makes waves far faster than expected.

Monetary policy has traditionally impacted the structure of long-term rates set by markets, but not quickly, yet today’s central bank bond purchases and low to negative interest rates are creating distortions everywhere, the Wall Street Journal reports.

One example is the Bank of England’s new quantitative easing program, which pushed long-dated gilt yields to historic lows after the BOE failed to buy as many bonds as it wanted Tuesday, shoving the 30-year yield to 1.3%.

Germany has also issued more than $178B of zero-coupon bonds, which are no longer even bonds in the traditional sense since they have no income attached to them and are only bets on the price the buyer thinks another investor is willing to pay. [WSJ]