Monday Market Minute | Aug 5, 2019

Global bond yields plunge — negative-yielding debt hits $16 trillion

What Moved

The stock of global negative-yielding debt surged past US$16 trillion in early August, an all-time high. German 10-year Bund yields fell below -0.5%, while the US 10-year Treasury dropped below 1.8%. Canadian 10-year Government bonds followed, declining to approximately 1.2%. The plunge was driven by a combination of the Fed cut, escalating US-China trade tensions (new tariff threats on remaining $300B of Chinese goods), and safe-haven demand.

Why It Matters

The global yield famine created an extraordinary tailwind for Canadian private credit. Institutional allocators — pension funds, endowments, family offices — faced the prospect of negative real returns on their fixed income portfolios. Canadian private credit offering 7-12% on asset-backed, short-duration instruments became not just attractive but essential for meeting return targets. The structural demand shift toward alternatives accelerated.

Signal to Watch

Subscription activity at Canadian alternative asset managers over the next 60 days would quantify the flow effect. Early indications suggested that fundraising timelines for new private credit vehicles were compressing — a direct consequence of the yield environment pushing capital toward alternatives faster than managers could deploy it.

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