Market Insight
April 20 , 2016
Yields in 20％ of the world are flooded, with yields on
two-thirds of Japanese bonds below zero
Hajime Takata, Chief Economist
Since the beginning of FY2016, many investors have launched new strategies. However, investors are hard
pressed to find investments given the flood of global yields (i.e., negative government bond yields). From 2015,
we have referred to the limited choices for investment when there are negative interest rates (i.e., a yield flood)
with the only option being an ‘LED strategy’ in the 3 areas of (1) Long, (2) External and (3) Diversification of
risk. This requires an understanding of the ‘flood’ levels in the global bond markets.
The chart illustrates the percentage of yields that are under water at the current point in time. The flood level
is 66% (or close to two-thirds) in Japan. Similarly, the flood level in Germany is 60%, followed by other
European countries such as France, Sweden and Denmark with flood levels of about 40%. 20% of the world is
in flood with yields less than zero, and much more of the global bond markets is in flood than anticipated. Here,
we consider the pressure on investors to find frontiers that are not in flood. Specifically, in terms of ‘L’
lengthening duration, extension is required to the extent that yields can be secured. Japan has negative yields on
[ Chart1 :
The outstanding balance and percentage of bonds with yields less than zero
(%)
70
65.8
Outstanding issues of bonds with yields less than zero
(right scale)
60.1
60
(USD trillion)
20
18
Percentage of bonds with yields less than zero
50
]
16
14
44.6
38.2
40
39.4
12
10
29.1
27.5
30
26.2
8
20.2
20
6
15.8
4
10
2
0
0
WORLD
Japan
Germany
France
Italy
United
Kingdom
Netherlands
Notes: The aggregate of government bonds and corporate bonds. As at March 28, 2016.
Source: Made by Mizuho Research Institute Ltd. based upon Bloomberg materials.
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Spain
Sweden
Denmark
Market Insight
April 20 , 2016
maturities out to 10 years, forcing investors to invest in 20 year maturities. The demand for long-term bonds is
growing, so further expansion of the super long-term bond market is also a topic for issuers. In terms of ‘E’
external investments, investors must seek out and invest in countries that still have positive yields. The US
accounts for roughly one-third of the world’s main frontiers that still have positive yields. The UK, Canada, Italy
and France, etc. are also likely to be included as investment targets. The US must be considered central when
investing globally. The investment stance under today’s investment conditions should not be one of ‘waiting’;
investment cannot be achieved without returning upstream to grasp the source of economic activity. Investment
itself is operating a business i.e., this also leads to a shift in the way of thinking to a world that is similar to
investment in real things.
This publication is compiled solely for the purpose of providing readers with information and is in no
way meant to encourage readers to buy or sell financial instruments.
Although this publication is
compiled on the basis of sources which we believe to be reliable and correct, the Mizuho Research
Institute does not warrant its accuracy and certainty.
Readers are requested to exercise their own
judgment in the use of this publication. Please also note that the contents of this publication may be
subject to change without prior notice.
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