Subzero Debt Goes Corporate!

“The interest rate risk that these bonds carry is huge… The losses that investors would take are unlike anything they’ve ever seen.”

— James Bianco, Bianco Research

Recently in Wealth Watch, I alerted you to the fast-growing pile of negative-yielding government bonds. Worldwide there’s $17 trillion worth at last count, which represents a staggering 30% of the entire global sovereign debt market.

It’s madness, and clearly not sustainable. But now the madness is going corporate.

The quote above from my colleague Jim Bianco, founder of Bianco Research, is taken from a recent CNBC article, which points out:

“Government bonds aren’t the only instruments producing negative yields these days, with [subzero] corporate debt recently passing the $1 trillion mark.”

Government bonds in Europe and Japan have offered negative yields for some time now, but subzero corporate bonds are a new and frightening phenomenon. Just look at the stunningly rapid rise in negative-yielding corporate bonds.

The total has risen from just $243 million worth of negative corporate debt in June to almost $1.1 trillion today.

That’s up a breathtaking 350% in less than three months!

This type of “hockey stick” move is an eerie and unpleasant reminder of similar charts in 2007, showing the rapid rise in credit default swaps and tightening credit conditions.

That happened just before the financial system crashed in 2008, wiping out $7.5 trillion in U.S. stock market wealth.

Most of the negative-yielding corporate bonds are also in Europe and Japan. And it shows just how desperate institutional investors are for yield today as interest rates collapse.

It also shows how much above the norm investors are willing to pay. Again, that’s an uncomfortable similarity to how much folks were willing to pay for real estate during the run-up to the ’08 housing bust.

The potential reward here, from somewhat higher bond prices, isn’t anywhere close to the enormous risk buyers of negative-yield corporate bonds are exposing themselves to right now.

As Jim points out, “The losses that investors would take are unlike anything they’ve ever seen.”

As an example, Jim notes if yields increase just two percentage points, it would be a 50% plunge in the principal value to bondholders.


If we somehow avoid a recession in the next year, a big winner from negative-yield corporate debt would be high-quality, investment-grade U.S. corporate bonds, which have much higher yields than similar corporate debt in Europe and Japan.

One way to profit is with the iShares Aaa–A-Rated Corporate Bond ETF (QLTA), which invests only in U.S. corporate bonds at the high end of the credit-quality spectrum.

The ETF is up nearly 11% this year in price appreciation alone, plus it pays you a 3% dividend yield.

If you’re looking to leverage some profit out of this negative-yield madness, QLTA is a great way to do so.

Here’s to growing your wealth,

Mike Burnick

Mike Burnick
Chief Income Expert

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Mike Burnick

Mike Burnick is the editor of Mike Burnick’s Wealth Watch, Infinite Income, Amplified Income and Millionaire Moments. Mike has been bringing his trading strategies to the masses for over 30 years. He has been with Seven Figure Publishing since 2017. In 2018, the average return of Infinite Income beat the...

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