Markets

Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

Just how horrible are negative interest rates? They're a "dirt sandwich." They're a "supernova" waiting to explode. They're a "horror."

Investors are reaching for an ever-more creative vocabulary to describe their feelings about record low benchmark rates around the world, including the negative-rate policies in Japan and Europe. Bond buyers have hated these low interest-rate policies for months, and it shows. It's like a debate class word battle.

Jeff Gundlach, who oversees more than $100 billion at DoubleLine Capital, told Reuters that his firm went "maximum negative" on Treasuries on July 6, when benchmark yields approached a new low. He also said, “The artist Christopher Wool has a word painting, 'Sell the house, sell the car, sell the kids.' That’s exactly how I feel -- sell everything." 

'Maximum Negative'
Bond investors are growing increasingly wary as U.S. benchmark yields shrink
Source: Bloomberg

Bill Gross is also staying away from developed-market government debt. "Sovereign bond yields at record lows aren’t worth the risk and are therefore not top of my shopping list right now," wrote Gross, Pimco's former star bond-fund manager who now manages money at Janus Capital.

Carlson Capital, an $8.5 billion hedge fund, said, "U.S. Treasuries are the wrong price," and "an alarm bell is ringing."

Fitch predicts $3.8 trillion of investor losses if investment-grade sovereign debt yields globally return to 2011 levels quickly.

Even Donald Trump is getting in on the action, calling rates "artificially low."

You know you're in for a rhetorical ride when Trump gets involved, and he's going to have plenty of company. Sovereign bond yields are still about one-third of what they were five years ago. Even in Japan, where central bankers have disappointed traders by not expanding their bond purchases and further lowering rates, yields on bonds maturing in 10 years are still below zero. 

Going, Going, Gone
Yields on developed-market sovereign bonds have plunged in recent years
Source: Bloomberg

One Japanese brokerage predicts 30-year bonds will fall near zero in two years.

While very low yields are incredibly unpleasant and could rise somewhat in the near future, it's hard to see an easy path to their disappearance soon. If benchmark yields were to rise quickly, it would have to result either from sovereign defaults or radical shifts in monetary policies, or it would stem from higher-than-expected growth and inflation rates. Central banks seem set on keeping markets calm for as long as they can. And growth is muddling along.

So unless central banks run out of ammunition and are forced to change course for some reason, it seems as if benchmark rates will remain in this ultralow range for a long time.

Investors can ease their anxiety by getting out their thesauruses and yelling into the echo chamber for months to come.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net