The desperate search for yield is getting dangerous

AN investor who fell asleep just two years ago and woke up today would be incredulous at the distortions in the global financial system. One prime example is how, despite a recovering economy, US 10-year Treasuries are yielding 1.5 per cent and still considered a good buy.

One just needs to look across the pond to Europe to find out why. UK 10-year Gilt yields are under 1 per cent. The 10-year German Bund is in negative territory. Dutch bonds had briefly dropped below zero, an apparent 500-year low. Even in the weak southern European countries such as Italy and Spain, 10-year bonds are trading just above 1 per cent.

Trillions of dollars of bonds are trading at negative yields. According to a Bank of Merrill Lynch report cited in The Wall Street Journal, there is now US$13 trillion of negative yielding debt, compared to US$11 trillion before the Brexit vote and almost none in mid-2014.