Almost $10tn of negative yielding government bonds are costing investors about $24bn annually, according to calculations by Fitch, posing challenges to long-term investors that rely on sovereign debt as a bedrock of their portfolios.
The rating agency warned that the previously unthinkable scenario of negative-yield bonds is having a “broad impact” on investors such as insurers, banks, pension funds and money market funds. Analysts say insurance companies and pension schemes in particular are struggling to get the returns they need to plug widening deficits.
Citigroup this year estimated that UK and US companies have pension deficits of $520bn, and put the developed world’s public sector pension underfunding at $78tn. Those deficits have been aggravated by the drooping yields of bonds, the traditional mainstay of their investment holdings.
Why Has the Labor Force Participation Rate Increased? (Macroblog)
During the last year, the negative effect on participation attributable to an aging population (0.22 percentage points) has been offset by a 0.23 percentage point decline in the share of people who want a job but are not counted as unemployed (including people who are marginally attached). This decline is an encouraging sign, and consistent with a tightening labor market.
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