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1/ Most Central Banks are now at 0% or NEG% overnight rates. Here's a composite of G10 overnight rates.
3/The consequences of these actions include $16.7 Trillion in negative yielding debt. Note, prior to 2008-09 GFC negative yielding debt didn't even exist.
4/ another consequence has been a gradual decline in yield produced by investment grade bonds. This means less "safe" income for conservative investors. This chart shows how the yield for $LQD has declined steadily over the last 10 years.
5/ Another consequence has been suppression of price discovery across the bond market. Here's the price chart for $LQD. Note how it is at all-time highs, at the exact same moment in time when the economic recovery is suspect.
6/ Also note the characteristics of $LQD including nearly 50% in BBB rated securities and a duration of 9.5 years.
7/ Put another way - current global monetary policies have resulted in an investment grade bond ETF holding 50% in near-junk bonds, while also extending duration to nearly 10 yrs - only to generate the lowest yield in the history of the fund.
8/ If long-term rates were to ever increase and/or the economic recovery falter (credit spreads widening), many bond investors will face significant losses.
9/ Final - if this happened, govt fiscal positions will also blow out. In effect, no one can tolerate higher rates or a slow down in econ. recovery. Central Banks know this - be prepared for VERY aggressive monetary policy in Q4/20 and Q121. Hint: $CAD negative rates are coming.
