BlackRock Sees ‘New Paradigm’ of Lower Yields for Longer

  • 30% of world government bonds in negative territory: BlackRock
  • Asia dollar bond yield premium narrows to lowest since 2007

BlackRock Inc. says low yields on dollar bonds, already hovering at levels unseen in about a decade in Asia, are set to persist.

“With 30 percent of the world government bonds in negative territory and 70 percent of world government bonds yielding less than 1 percent due to the extended period of global monetary easing, we are in a new investment paradigm of yields being lower for longer,” said Neeraj Seth, Singapore-based head of Asian credit at BlackRock.

The extra yield over Treasuries that investors demand to hold U.S. currency notes from corporate issuers in Asia has slid 26 basis points in August to 199, the lowest since 2007, according to a Bank of America Merrill Lynch index.

Investors are looking for clues from central bankers on the timing of potential interest rate hikes with Federal Reserve chair Janet Yellen speaking on Aug. 26 at an annual symposium in Wyoming. Fed vice chairman Stanley Fischer on Sunday signaled that a 2016 rate hike is still under consideration. Even if it raises rates, other central banks could remain accomodative.

The tightened spreads are worrying some investors. “It’s a concern that investors are now buying Asia dollar bonds at low yields even though fundamentals haven’t improved much,” said Clement Chong, senior credit analyst at NN Investment Partners. He expects the technical backdrop to remain supportive of Asian high-yield notes but that onshore defaults in China could force companies to tap the dollar bond market.

Low Yields

Ken Hu, chief investment officer of fixed income at Invesco Hong Kong Ltd., said that the corporate bond purchases by the European Central Bank and the Bank of England as well as “likely additional quantitative easing” by the Bank of Japan are driving demand for Asian dollar bonds.

Twenty two of 33 people said in a Bloomberg survey conducted Aug. 1-4 that a policy review to be conducted at the BOJ’s meeting next month makes an expansion of stimulus more likely.

Negative yielding bonds are the “new norm” and therefore investors are looking to invest in Asia dollar bonds today despite their tight valuations, said Nomura Holdings Inc.’s head of Asia ex-Japan flow credit analysis Annisa Lee.

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