Report
The consequences of the undersupply of risk-free bonds
T he asset class of risk-free bonds can be considered to include the government bonds of the United States, Canada, the core euro-zone countries, the United Kingdom, Sweden, Switzerland, Denmark, Japan and Australia. We begin with the observation that the share of risk-free bonds in total financial assets (equities, bonds, money market assets) declined from 23.5% in 2011 to 19% in 2019. This has given rise to the well-known situation of a n undersupply of risk-free bonds. What has it resulted in? Very low equilibrium risk-free long-term bond yields; It has forced investors to consider other bonds as risk-free (for example peripheral euro-zone government bonds, Investment Grade corporate bonds) in order to increase the available stock of supposedly risk-free bonds; It has forced investors to increase the weight of riskier assets in their portfolios.
Provider
Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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