Despite a recent sell-off, $17trn in global bonds trade with a negative yield.
Germany gets paid to borrow for 30 years and the 10-year bund is at its lowest level since 1991.
The 10-year yield for Greece, a country below investment grade with no control over its currency that would help to pay off its debt, is almost 0.4% lower than the yield on the respective US bond, the only country whose 'reserve currency' status allows it to print money with little or no inflationary implications.
Why are investors flocking into European bonds despite low yields? It is partly because of the reversion in central bank rhetoric into a more dovish territory, and an apparent lack of inflation, which have pushed yield curves further down.
On 12 September, the European Central Bank (ECB) decided to restart quantitative easing, planning to buy €20bn per month for an indefinite period.
Still, negative yields make little sense. Investors lending money to the German government for ten years are assured to lose 0.5% each year, or 5% if they hold until maturity.
Why would anyone buy an investment guaranteed to lose? One assumption would be because they are afraid that they would lose more in other assets and cash.
However, only in the late 1970s and the Global Financial Crisis were long-term equity returns so low, so unless someone is expecting runaway inflation ruining the global economy or another Lehman-like event, that pessimism may be misplaced.
The more probable reason would be because they expect someone will soon take it away from their hands at a higher price than what they paid.
As buyers see the US Federal Reserve extending its maturity reinvestment programme and the ECB back in buying mode, they feel that a strong institutional buyer will be present for bonds, so they would pile into the asset class without expecting to hold it until maturity. Algo-driven momentum strategies may enhance that trend.
In essence, it is 'buying because others are buying'. Does this mean that recent bond movements are a bubble?
We believe there is a solid case to say they are, but at any rate they are much more expensive than equities or their own historic valuations.
George Lagarias is chief economist at Mazars
• Momentum is still positive in European bonds despite recent correction
• Central banks could become even more dovish in Europe
• Nothing pointing towards a major crisis in funds
• Bonds very expensive versus history and equities