Fund Managers Led Into a $13 Trillion Temptation
With bond yields at record lows and equities near record highs, less liquid investments are starting to look dangerously attractive.
The liquidity trap.
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With almost $13 trillion of bonds in the global debt market yielding less than zero, fund managers are increasingly chasing returns in less liquid assets. The result could be a reduction in the transparency about what portfolios are really worth. Regulators are right to be paying heightened attention to any misadventures in illiquidity.
The decline in interest income available in the global bond market – even on securities that haven’t yet breached the zero bound – is truly staggering. The average yield on the world’s $54 trillion of investment grade debt is a paltry 1.5%, down from 9% at the start of 1990 and about half of its average since then.