Real bond yields in most of the advanced economies are negative

Here are bond yields of the major advanced economies. They are flat as a rock. Meaning, In a normal economic environment, you should be compensated for the duration risk you assume (buying longer-duration bonds) with more yield. But this is by no means a normal economic environment.

So, real yields = nominal yields - inflation. In all of these countries except Italy, investors are losing money.

Today, even if an investor assumes duration risk, he will hardly get about 50 to 100 bps extra which isn’t much at all.

In this chart, Italy is an outlier. The reason why Italian yields are higher is that the county is perceived as risky give it slowing growth and extremely high levels of sovereign debt.

@RahulKhanna , this is a very pertinent topic with respect to the Indian economy. The yields in the range of negative to slightly positive values for the developed economies mean FDIs are going to shift their assets to the emerging economies like India. Compare 10 yr Gsec yield in India of 7.3% to that of 10 yr GSec yield in US of around 2.3%.

However, as more money gets pumped into the Indian bond market, the prices rise and the yields fall. Eventually, as the Indian economy moves from developing to developed, the cost of debt and the consequent yields are bound to fall. By how much time Indian Bond yields reach there only time will tell : )

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