Global bond yields continue to tumble as investors dogpile into bonds over fears of a looming recession. The worlds central bankers are rewarding such behaviour by slashing interest rates further into negative territory. Negative yielding debt is becoming the norm, surpassing $16T globally, a stunning example of a broken monetary system.
Right on cue, In the world’s largest covered-bond market, a Danish bank unveiled its 10-year mortgage-backed notes at a negative coupon. Jyske bank will offer 10 year mortgage bonds to investors at a fixed rate of minus 0.5%. In other words, investors are paying for the privilege to lose money, assuming they hold to maturity.
Jyske Bank says it would rather not be setting such records, given the global economic weakness that’s behind the historically low interest rates. “It’s a first not only for us but for all Danish mortgage institutions,” said Christian Bech-Ravn, head of ratings and investor relations at Jyske’s mortgage arm. “Overall, I don’t think it’s a good sign for the economy with these very low interest levels that we are seeing at the moment.”
Meanwhile in Australia, with threats of a bursting property bubble, the Aussie central bank has been swift to slash interest rates to record lows. Household debt has ballooned to 120% of GDP, the highest in the G-20. ABC News reports debt burdens have become so enormous that Foodbank South Australia has been approached by banks wanting to refer their clients to the charity, in the hope it will prevent people from defaulting on mortgage payments. The details are still being ironed out, however, Foodbank South Australia chief executive Greg Pattinson told ABC Radio,”We’ve never been approached by financial institutions in the past and the banks, to their credit, are doing the right thing in trying to find a way of keeping people in their houses.”
In the US, 30 year mortgage rates continue to fall. Households can now borrow at 3.55%, the lowest level since November 2016, and just 24bps higher than the record lows set back in 2012.
Canada of course has not been immune. The Canada 5 year bond which prices fixed rate mortgages continues to fall, down to just 1.174%, a plunge of nearly 140bps since late last year. The best five year fixed rate mortgages can now be had for under 2.7%. Lower for longer, as the Bank of Canada gets ready for their turn to slash rates this fall.