Key Global Bond Index Suffered $916 Billion Loss Last Week

Zero coupon, long-duration bonds are a noxious cocktail in an era of rising rates, and investors are voting with their feet. A Pimco version of the investing strategy is trading at its lowest since September 2014.

Talk of interest-rate lift-off in the euro area and signs that even Japan is tentatively tightening policy have helped drain the pool of negative-yielding global bonds.

The market value of obligations with below-zero yields now stands at $5.79 trillion — the smallest since January 2016, one year into large-scale European quantitative easing and two months before the ECB increased monthly purchases and expanded the program to include corporate bonds.

Shelters are increasingly hard to find. The iShares TIPS Bond ETF, designed to protect against inflation, is down over 2 percent this year in total returns.

Underscoring fears held by some investors that rising borrowing costs will hit Corporate America, the riskier corners of the global trading landscape are also getting punished. A record $1.2 billion exited the iShares iBoxx High Yield Corporate Bond ETF on Friday, while its SPDR peer notched steady outflows last week.

There are saving graces. Spreads on junk obligations in the cash market, dubbed a lead indicator for the global business cycle, are close to cycle lows. Meanwhile, the compensation investors demand to hold longer-term Treasuries over shorter-dated maturities, the term premium, remains exceptionally low — capping bearish pressure in U.S. government debt.

And there's a glass half-full take: Income-starved portfolios are finally getting some relief after years of financial repression, with the opportunity to reinvest proceeds from shorter-dated debt into higher-yielding securities.

"Rates could always continue to go higher and cause more pain for bond investors but the best way to increase long-term expected returns in this space is to invest at higher yields," Carlson, a contributor to Bloomberg Opinion, wrote in the post.