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World-Bond Funds Grapple With Japan's Negative Yields

Japanese government bonds' big role in global-bond indexes make them hard to avoid.

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Managing world-bond funds has become much more difficult because the overseas government debt market is awash with roughly $13 trillion in bonds sporting negative yields. Japanese government bonds, hereafter JGBs, represent the vast majority of this debt, more than 4 times as much coming from France or Germany, which have issued the next-largest amounts.

Given Japan's prominence in global bond indexes (typically 20%-35% of overall exposure), yields on those benchmarks have been feeling the crunch since the two-year JGB dipped into negative territory in December 2014, and this year, 10- and 20-year JGB yields slid below zero.

Karin Anderson has a position in the following securities mentioned above: TPINX. Find out about Morningstar’s editorial policies.