SYDNEY • Central bankers' signals of a coming end to the era of unprecedented stimulus are helping to shrink the pile of debt with negative yields, which is now the smallest since just after the Bank of Japan went sub-zero.
The sell-off in global bonds that started last month means there is US$6.5 trillion (S$8.9 trillion) of securities in the Bloomberg Barclays Global benchmark index that guarantee losses if held to maturity.
That is down from a peak of more than US$12 trillion just after Britain's Brexit referendum in June last year. It now represents a mere 14 per cent of the overall index, the lowest in 18 months.
Policymakers over the past decade responded to a slew of crises that followed the 2008 credit crunch by slashing policy rates to levels that were not just unprecedented, but in some cases previously deemed almost inconceivable - breaking below the zero bound.
The world's three biggest monetary authorities doubled down with asset purchases that swelled their combined balance sheets to almost US$14 trillion. Now, they are hoping that growth momentum is healthy enough to cope with a more normal policy mix - and that is starting to turn the world of bonds back into a more recognisable place. And a healthier one for pension funds and banks that need higher long-term rates to boost returns.
"Negative yields threatened to bring a collapse to the monetary system," said Mr Park Sungjin of Mirae Asset Daewoo. "With negative yield assets shrinking, it shows it won't happen. It's very welcome."
The bond world remains a long way from what many would call normal. The pile of negative yield debt is still greater than the combined fixed income markets of Italy and Germany.
The shift towards tighter policy has raised concerns about how ready the world is for less-than- loose monetary settings, though neither stocks nor bonds have seen extreme turmoil so far.
For now, rates are moving up at a similar pace to inflation, and that may be key for how far central bankers are willing to tighten.