Investors have seen their interest income squeezed as global bond yields plunge. On the flipside, governments aren't complaining.
Relative to yields in 2011, global investors are foregoing more than $500 billion in annual income on roughly $38 trillion in sovereign debt that is outstanding, Fitch Ratings said in a report on Wednesday.
"Cash flow benefits have effectively been transferred from global investors to sovereign issuers, as sovereign borrowing costs have dropped in response to central bank monetary stimulus," Fitch said in the report.
"This has posed new challenges for income-reliant investors, such as insurers and pension funds, while enabling governments to borrow at increasingly attractive rates."
Borrowers would realize benefits only slowly, however, as bonds with higher coupon rates matured and newer bonds with lower interest rates were issued, the rating agency said.
According to Fitch, investors who tended to buy assets and hold them onto maturity would have to invest new cash in bonds that paid lower interest rates, blunting the money they earned from coupon payments.
Government bond yields, which move inversely to prices, have plummeted around the world as central banks in many developed economies scooped up bonds in order to provide stimulus to their economies.
These purchases have sparked a scramble for government debt, enabling many countries to flog bonds while cutting the interest rates they have to pay to lure investors.
Countries including Germany and Japan have sold bonds at negative yields at auctions, effectively being paid by investors for the privilege of parking their funds. Yield on the U.S. 10-year Treasury note fell to a record low in July.
Concerns over the health of the global economy have also spurred a flight to assets perceived to be safe, such as government bonds.
Over time, the decline in bond yields had the potential to lead more governments to pivot to fiscal stimulus as a tool to boost economic growth, Fitch said.
There were still concerns for governments, however. A sustained decline in bond yields could push up government debt levels and increase general indebtedness, the ratings agency cautioned.