Financier bill gross warned of a supernova explosion in the bond market


American financier bill gross, the asset Manager in the company Janus Capital, have warned of the dangers prevailing in the bond market due to the sharp decline in their yields. He wrote in a corporate Twitter account: “global yield of minimum 500 years of recorded history. Volume of bonds with a negative yield reached $10 trillion. It is supernovae that will explode one day”.

Gross is known as a founder of investment Fund PIMCO and his opinion on the bond market is as weighty as the statements of Warren Buffett for traditional investors. In the ranking of billionaires Forbes 906 gross took third place with $2 billion.

The average yield on global sovereign bond market fell, according to Bank of America Merrill Lynch, to a new record low values at 0.67 percent per annum, writes the Financial Times. The publication notes that, according to rating Agency Fitch, the total amount of sovereign debt with negative yields increased in may by 5% to $10.4 trillion.

Gross’s concern is echoed by other investors, says the FT. Trust company Capital Group, under which is $1.4 trillion, and warned that negative interest rates distort financial markets and the economy and can cause “potentially dangerous consequences”.

The head of the Los Angeles bondhus DoubleLine’s Jeffrey Gundlach recently said, according to FT, that negative interest rates “the most stupid idea that he ever encountered”. He warned that “the next significant event [for the markets] will be a time when Central banks in Japan and Europe will give up and stop this experiment.”

Financial regulators of Japan and several European countries were downgraded the last time the key rate to negative values. This, combined with speculative investor demand for bonds, has led to a decline in the yields of sovereign debt of $10 trillion to negative values, explains FT.

This situation is costing investors billions of dollars and forcing many of them to buy bonds with increasing maturities or lower credit ratings if they still offer a small return. As a result, investors may suffer significant losses if the yield, the values of which move in the opposite direction to bond prices, rise sharply, concludes the FT.

Even relatively small increases in yield can be costly to investors, the newspaper notes. It cites a recent assessment by Goldman Sachs, according to which a sudden increase in the yield of us Treasury bonds by 1% will lead to losses of $1 trillion, which exceeds the loss from mortgage bonds during the financial crisis.