First considered a mere curiosity, negative interest rates came to dominate financial and bond markets for years. Japan has finally written the final chapter and closed the book on the story.

The end of negative interest rates is now official after the Bank of Japan made an unexpected change of course, helping to push the yield on two-year Japanese government bonds rose into positive territory for the first time to 0.03 percent this week.

At the same time, a Bloomberg index tracking the market value of negative-yield debt around the world reached zero for the first time since 2010, according to the «Financial Times» (behind paywall). As recently as the end of 2020, the market value of bonds trading at a negative yield had been over $18 trillion. At the time, central banks had slashed interest rates and launched large bond-buying programs because of the Corona pandemic.

Unthinkable Before 2014

The extraordinary measures taken by central banks were intended to stimulate the economies. Meanwhile, the resulting negative yields, initially seen as a curiosity by investors, became commonplace beginning in 2014.

They spread to more than a quarter of global fixed-income securities, mainly to the eurozone and Japanese government bonds, although some corporate bonds and short-term government debt in the United States and the United Kingdom were also affected.

Swiss Exit in 2022

The end of the era of loose monetary policy last year triggered a historic bond selloff, rapidly shrinking the stock as central banks in the eurozone and Switzerland brought down the curtain on years of negative interest rates.

At the start of 2022, yields on the Swiss government's ten-year bonds moved into positive territory for the first time in more than three years. The SNB spot rate, which is calculated from the average yield on ten-year federal government bonds, was also positive at the beginning of January 2022 for the first time since November 2018.

While nominal yields of below zero are history, at least for the time being, high inflation means investors in many bond markets are facing negative yields in real terms.