Robin Wigglesworth and Joel Lewin:
Even a relatively modest rise in yields could cost investors dearly. Goldman Sachs recently estimated that an unexpected 1 percentage point rise in US Treasury yields would trigger $1tn of losses, exceeding the financial crisis losses from mortgage-backed bonds.
Negative-yield debt breaks $10tn level for first time
A close-up of the front of the US 10-dollar bill bearing the portrait of Alexander Hamilton, America’s first Treasury Secretary, is seen on December 7, 2010 in Washington, DCSovereign paper with sub-zero yield up 5% month on month, buoyed by rising prices
Mr Gross joins a mounting chorus of big investors who fret that this phenomenon will end in tears. Capital Group — which manages about $1.4tn — has warned that negative interest rates were distorting financial markets and economies, and might lead to “potentially dangerous consequences”.
Jeffrey Gundlach, the head of Los Angeles-based bond house DoubleLine, recently told a Swiss newspaper that negative interest rates “are the stupidest idea I have ever experienced”, and warned that “the next major event [for markets] will be the moment when central banks in Japan and in Europe give up and cancel the experiment”.