Mark Gilbert , Columnist

The Widowmaker Trade for Hedge Funds Strikes Again

Negative yields are about to trash returns from shorting government bonds.

January 4, 2019 at 6:00 AM UTC

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. A former London bureau chief for Bloomberg News, he is author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

Oh, no. — Oh, no.
Photographer: John Zich/Bloomberg

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The threat of a synchronized global economic slowdown has erased trillions of dollars of value from global stock markets in recent months. As they flee to the perceived safety of government bonds, investors are driving yields in many corners of the fixed income market back below zero. Once again, shorting government debt is proving to be a widowmaking trade.

After dropping to a three-year low of $5.73 trillion in October, the amount of negative-yielding debt has climbed by more than 46 percent in the past three months to reach $8.4 trillion. That’s quite an achievement given that the European Central Bank halted its bond purchases at the end of last year.