Where To Get Income In A Low-Yield World

Just take a look at what’s happening in Greece right now. Never mind the Mediterranean country’s BB-rated credit. A bond rally there has driven Greek 10-year yields below 1 percent for the first time ever as income-starved investors pile into one of the few eurozone debt markets to still offer a positive yield.

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Greek 10 Year Bond Falls


Can you blame them? The mountain of negative-yielding government bonds around the world, now at $13 trillion, could inadvertently cost pension funds and other institutional investors as much as $1 trillion this year, according to estimates by Daniel Tenengauzer, head of markets strategy at Bank of New York Mellon.

Check Your 401(k) for This Bond ETF

But who buys negative-yielding bonds anyway? (And here I’m talking about nominal bond yields, not inflation-adjusted yields. When adjusted for inflation, these bond yields are even more negative.)

Don’t act surprised, but chances are good that you own some in your 401(k), especially if it holds passive ETFs that track international bond markets. One of the more popular ETFs, the Vanguard Total International Bond ETF, is highly concentrated in some of the biggest issuers of debt that trades with a negative yield. As of the end of last quarter, 19 percent of the ETF was allocated to Japan, where about half of all debt carries a yield below zero. That’s followed by 12 percent in France and 9 percent in Germany, both of which also have a significant amount of money-losing bonds.

Again, you may own this ETF, and others like it, in your 401(k) or retirement account without realizing it. It’s worth checking to make sure because even JPMorgan CEO Jamie Dimon, who once said he “would never buy a negative-rate bond,” did, in fact, buy not just one but a plethora, as the investment bank had a nearly-25 percent stake in Vanguard’s international bond ETF.

Record Municipal Bond Inflows

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Disclaimer: A bond’s credit quality is determined by private independent rating agencies such as Standard & Poor’s, Moody’s and Fitch. Credit quality designations range ...

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