FX168 Financial News (Hong Kong) on Thursday, the value of global negative-yield bonds soared to more than $16.5 trillion, the highest level in six months, as a rebound in global bonds pushed borrowing costs below zero.

Government bond yields have plummeted in recent weeks as a result of an influx of traders, a move that has caught many investors who expect the economy to rebound from the pandemic and rising inflation to raise long-term borrowing costs.

This week Japanese 10-year bond yields fell below zero for the first time since December. In Europe, German 10-year bond yields fell to minus 0.51 per cent, the lowest level since early February, and 30-year bond yields also fell below zero. this means that all German debt, which is written as a reference for euro-zone bonds, is now trading at negative yields. French bonds trade at yields below zero for up to 12 years, Spain for up to nine years and Italy and Greece for up to seven years.

Global negative-yield debt has risen from just over $12 trillion in mid-May to close to a record level of more than $18 trillion in December, according to an index by Barclays. Negative yields mean that investors are willing to pay for the opportunity to lend, and debt holders promise to lose money.

While the shift partly reflects growing concerns that the Delta coronavirus variant could slow the recovery, many fund managers and analysts believe that the lowest yield, which indicates a bleak outlook, is out of touch with economic reality, and some accuse the central bank of buying large amounts of bonds, which they say has had a huge impact in calm summer trading conditions.

The European Central Bank raised its largest debt-buying program to 87 billion euros in July, up from 80 billion euros in the previous three months. Antoine Bouvet, a strategist at ING, said the purchases "overwhelmed" yields on eurozone bonds of various maturities, saying the sharp drop in yields "usually indicates that the market expects growth to slow sharply or even decline". "I am not 100% ignoring concerns about the economy, but overall, the reason for the sharp drop in interest rates is central bank intervention".

The real yield on the 10-year Treasury note has recently reached a record low. In the past, the real yield was sometimes negative, but now it is lower than ever. The yield on 10-year Treasury bonds is related to the rate of nominal economic growth (NGDP). NGDP includes inflation, and long-term low interest rates usually indicate that the bond market expects lower NGDP growth in the future.

However, other factors can play a big role in a shorter period of time, with inflation expectations now at 2.4 per cent, well above the Fed's 2 per cent target, suggesting that despite the low 10-year Treasury yields, but the bond market takes into account more than just low inflation.

What is unique about the current environment is that the Federal Reserve and other global central banks have introduced a large number of stimulus measures to the financial system, which analysts believe is buying US Treasuries, which has led to rising bond prices and low yields. But importantly, as the Fed starts to reduce its support in the coming months, this trend is expected to reverse and 10-year Treasury yields will rise again, possibly much higher.