JPMorgan Says Real Yields Are Negative for $31 Trillion of Bonds

(Bloomberg) -- JPMorgan Chase & Co. says the stockpile of developed sovereign debt with a negative yields adjusted for inflation has doubled over the past two years to $31 trillion.

As the Federal Reserve prepares to let prices run hotter to fix the pandemic-hit labor market, the Wall Street bank has a message for investors: Get used to it.

“Despite how logic defying the phenomenon is, negative real yields will likely stay with us for a long period to come,” wrote strategists including Boyang Liu and Eddie Yoon.

Federal Reserve Chair Jerome Powell stressed this week that the U.S. economy needs more fiscal support and has promised to keep rates low to allow for a recovery.

Among the bank’s calculations on the sub-zero world of sovereign debt in inflation-adjusted terms:

• In the developed world, the pile accounts for around 76% of debt outstanding, compared with 57% three years ago.
• With 10-year market-derived expectations for price growth at 1.9%, some 95% of Treasury notes and bonds offer a sub-zero yield.
• That compares with 32% and close to 100% in Japan and the euro area, respectively.
• All developed bills and short-dated bonds, at $10 trillion, are in this category -- a sixfold increase since 2017.
• Investors also get little compensation for longer-dated risk, with less than half of the securities greater than 10 years to maturity now trading above zero, after adjusting for inflation.
• No wonder the hunt for yield in emerging markets is so intense, where some 17% of total debt is sub-zero, JPMorgan said.

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