QIC is calling for the relaxation of benchmark constraints on fixed income portfolios, saying that investors could otherwise be paying to lose money.
Global alternative fund manager, QIC, said fixed income investors could be at risk of paying to lose money, as they faced negative interest rates and deeply liquid bond markets, unless they changed their investment approach.
QIC’s managing director of global liquid strategies, Susan Buckley, said around 30 per cent of the world’s government bonds, and an increasing amount of corporate bonds traded at negative yields.
This was the result of negative interest rates that were in place by central banks which included Bank of Japan (BOJ), the European Central Bank, as well as the central banks in Denmark, Sweden and Switzerland.
Japanese debt accounted for around 66 per cent of negative yielding debt worldwide, with an estimated $6.5 trillion in fixed-rate debt obligations, that yielded less than zero per cent, she said.
The BOJ now owned at least a third of outstanding Japanese government bonds as a result of its asset purchase program, Buckley said.
She found that Japanese institutions had started to loosen themselves from benchmarks, as they didn’t make sense amid negative yields.
“Investors need to respond by relaxing the constraints about benchmarks, otherwise they risk weighing down their portfolios with loss-making assets,” she said.
She added they needed to tackle complications from negative yields head-on instead of letting their portfolios be eroded and chained down by benchmarks.
