Last year, the issuance of negative-yielding debt generally declined as the global economy prepared to reopen. It was a sign from the investors that the worst of the pandemic would soon be over.
But over the past 90 days a different story has emerged, as rising economic and social risks linked to the delta variant around the world have rattled investors and pushed them back into the safety of government-issued debt. The result is that the total global issuance of negative-yielding debt has again surged above $15 trillion.
We have already lowered our forecast for U.S. gross domestic product to 7% this year in part because of what is looking like a fourth wave of the virus in the United States, and because the delta variant has taken a significant toll on emerging markets like Vietnam. This renewed spread of the virus strongly implies downside risk to our current-year forecast should the variant continue to spread or government efforts to increase the vaccination rate fail.
The securities markets are reflecting investors’ anxiety over the spread of the delta variant.
The securities markets are reflecting this anxiety. The total volume of negative-yielding debt moved back above $15 trillion on July 16 for the first time since early February. Issuance of negative-yielding debt bottomed out at $12.6 trillion on Feb. 6, 2020, and began its recent strong upside move around June 25, 2020, that has yet to materially abate. This is part of the larger story of the decline in the benchmark U.S. 10-year Treasury yield to a recent low of 1.12% on July 20, down from the cyclical peak of 1.74% on March 31.
The potential for the spread of the delta variant is growing. Roughly 100 million Americans are unvaccinated, and the delta variant accounted for 83% of all COVID-19 cases in the United States in mid-July, based on genetic sequences from positive tests collected by the Centers for Disease Control and Prevention. That is up from 50% during the week of July 3.
Should government officials falter in their efforts to increase the pace and magnitude of vaccinations, we would again expect to revise down our estimates for GDP growth, the pace of hiring and inflation.