The High Cost of Hunting for Yield
When central banks drive rates ever downward, investors hungry for fatter returns find themselves making exotic choices.
A decent yield is hard to find.
Photographer: GIANLUIGI GUERCIA/AFP/Getty Images
The world’s central banks keep squeezing investors into ever-more-exotic corners of the financial world in a desperate hunt for yield. The system is starting to spring leaks under the pressure.
You wouldn’t know it from the stock market; the S&P 500 has soared to record highs on recent hints of new monetary stimulus to come, from the Fed and elsewhere. But this isn’t a healthy response, writes Mohamed El-Erian. Markets are so dependent on central bankers that they ignore the many fundamental global problems – from trade wars to widespread political dysfunction – that spurred rescuers into action in the first place. Wise investors should pay attention to what the herd ignores.