From high yield to no yield

Government bond rates trading at sub-zero levels seem to be the new norm and it can all be traced back to ultra-loose monetary policy stances by major central banks, including the Bank of Japan and the European Central Bank. By the end of August 2019, the global value of negative-yielding debt had surpassed the €15 trillion mark, meaning that investors who acquire the debt, and hold it until maturity, are guaranteed to make a loss. In comparison, two decades ago, about half of the global bond market yielded at least five per cent, whereas nowadays that portion has dropped to a mere three per cent.

Historically, high-yielding corporate bonds offered investors a chance to enhance their income streams, if they were willing to accept the increased level of risk. However, since the aftermath of the great financial crisis of 2008, yields on high risk bonds have been trending down to levels once offered by highly rated government bonds. Driven by fears of an economic slowdown, a world-wide bond rally has benefited investors whilst dragging down yields on both government and corporate bonds to record lows.

This has left investors scouring the investment universe for ways to generate...