The IMF Just Issued a Warning About Stretched Valuations, Pension Risks, and Rising Corporate Debt
As more of the world moves toward lower rates, investors, including pension funds and insurers, have pushed into riskier and more illiquid investments, stretching valuations, according to a report released Wednesday by the International Monetary Fund.
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About 70% of economies globally have moved toward a more-accommodative monetary stance. Interest rate cuts from the Federal Reserve and others have bolstered stock markets and cushioned some of the blow to global growth from trade and other geopolitical tensions.
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But the trend also has brought risks, such as stretched valuations in emerging- and frontier-market stock and bond markets, as well as U.S. and Japanese stocks, and rising corporate and government debt levels, according to the IMF’s assessment of the stability of global financial markets, which was released as finance ministers and central bankers gather in Washington for the IMF’s annual meeting this week.
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Roughly $15 trillion of corporate and government debt has a negative yield—essentially paying borrowers to take out more money—and markets are pricing in that one-fifth of government bonds will have negative yields for at least three years, Tobias Adrian, director of the IMF’s monetary and capital markets department, said in a news briefing.
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