"Give me your tired, your poor/Your underperforming managers yearning for returns..."
The global dearth of yield was on full display this week by Toyota Motor Corp.'s sale of yen bonds with a coupon that boasted a decimal place preceded by multiple zeros — at 0.001 percent. Hans Mikkelson, Bank of America Corp. credit strategist, points out that the scarcity of yield in Japan and elsewhere has prompted a fresh wave of investors searching for returns on U.S. shores, where investment-grade bonds sold by companies with stronger balance sheets are now paying $180 billion worth of yields annually — or eight times the amount available in the equivalent euro market.
Yields have been depressed by stimulus measures deployed by (some of) the world's central banks, notably the Bank of Japan and the European Central Bank, which began buying corporate bonds today in an effort to boost the eurozone economy. Of course, the prospect of investors shifting money into the U.S. could renew questions over the efficacy of regional bond buying and the prospect of 'leakages' to other parts of the world.
The U.S. corporate bond market has already soared in size as companies sought to take advantage of yield-hungry investors to refinance their debt at ultra-low rates. Even with that expansion, however, investors have been left scrambling for corporate debt to plug into their portfolios.
"This extreme pricing action in Europe and Japan is, of course, the result of extreme monetary policy accommodation by the ECB and BOJ in response to economic weakness," Mikkelson concludes. "No wonder we are seeing big foreign inflows to the U.S. corporate bond market, which is the only place that has yield, size and (relative) liquidity."
A further boost to the U.S. bond market is probably not what the ECB had in mind when it decided to take unprecedented action to stimulate European economies.