As global interest rates have fallen, with $10 trillion of sovereign bonds carrying negative yields, investors are struggling to find productive ways to deploy cash in turbulent equity and fixed income markets. Cross-border cash flow into debt issued by countries where inflation is benign (such as Russia, Brazil, and Indonesia) has been one result.
"Interest rates are really starting to bite. Cash is now expensive," said Stephen Cohen, global head of fixed income beta at the world's largest asset manager, said at a briefing. "Cross-border flows are being driven by 'how do I get away from negative yields'," he told reporters in London. Cohen said low yields and interest rates are creating distortions in global fixed income markets. His colleague Owen Murfin, co-lead manager for global bond strategies, said "high quality" income streams offered by investment grade bonds and U.S. mortgage bonds were among the most attractive areas to invest.