Global negative-yielding debt jumps to $17.5 tln amid Covid-19 crisis: BIS

Doaa A.Moneim , Thursday 10 Dec 2020

The Switzerland-based Bank of International Settlements is owned by 63 central banks of countries that together account for about 95 percent of world GDP

Global negative-yielding debt jumped to $17.5 trillion in 2020, on a par with all-time highs, pushing investors into riskier assets as they searched for yield, widening in turn the range of low- or negative-yielding assets.

The Covid-19 pandemic and its associated economic impacts was the major driver, the Bank of International Settlements (BIS) revealed in its quarterly review report.

The Switzerland-based BIS is owned by 63 central banks of countries that together account for about 95 percent of world GDP.

On emerging markets economies (EMEs), the report said that sentiment towards such economies’ fixed income markets improved after the US election, adding that portfolio inflows into funds investing in dollar-denominated fixed income assets from EMEs, except China, continued to gain traction.

It added that their year-to-date cumulative amount turned positive again in September, and approached pre-pandemic outbreak levels towards the end of the review period.

Local currency EME funds, except China, booked modest inflows in November. But the corresponding year-to-date cumulative portfolio flows remained deeply in the negative, said the report.

Further, EME yields remained stable in both local currency and dollar-denominated segments, driven by improved sentiment and EME central banks’ accommodative monetary policy, which built upon the global easing environment and soft inflation numbers. Yields took a step down in the wake of the US election.

On central banks’ digital currency (CBDC), the report expected that it could become a new tool of payment amid ongoing challenges.

“Unlike the reserves held by commercial banks at central banks, this form of safe digital money could be made available to individuals and businesses, complementing physical cash.

In terms of benefits, retail CBDCs may help overcome the limitations of national payment systems through offering a convenient and affordable payment instrument,” said the report.

It added that CBDCs may promote financial inclusion and reduce the risk that users switch to less safe or transparent means of payments, and may provide a more affordable common means of transferring funds across accounts held at different PSPs domestically, thus reducing the costs associated with low interoperability.

In this respect, the report pointed out that adoption and development of digital payments has received a further boost worldwide due to the Covid-19 pandemic, as restrictions on bricks-and-mortar retailers and concerns about viral transmission via cash have given people a stronger incentive to purchase online and to use digital payments.

Moreover, many governments backed the shift to cashless payments amid the crisis for the sake of containing virus outbreak, according the report.

The report also asserted that new reports about advances towards an effective vaccine against Covid-19 has benefited financial markets globally and stock markets as well.

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