That assessment has shifted dramatically in recent months, particularly in the euro area, where the European Central Bank on Thursday reiterated plans to end its bond-buying programme this year, and traders are betting that interest rates will return to zero for the first time since 2014 by December.
An end to ultra-low or negative yields is a "double-edged sword" for bond investors, according to Riddell. "On the one hand people are nursing losses on the bonds they hold. But the flipside is that positive risk-free rates mean future returns arguably look better." He added that would be "good news" for investors such as pension funds that need to hold large quantities of safe assets like government bonds but also need to earn sufficient returns to meet future payouts.
The dwindling stock of negative-yielding debt also reflects high levels of inflation, which has driven investors to demand greater compensation for rising prices, according to Salman Ahmed, global head of macro at Fidelity International.
"Yes, nominal yields are moving up but long-term investors should really care about real returns. It's what's left after inflation that counts, and inflation is very high right now," he said.
The eurozone has been the big driver of the reduction in debt trading at sub-zero yields. In December, the currency bloc accounted for more than $7t of such bonds, including all of Germany's government bonds. That figure has declined to just $400 billion. Japan, where the central bank has so far resisted the global shift towards tighter monetary policy, now accounts for more than 80 per cent of the world's negative-yielding bonds.
Negative yields are likely to multiply again in the euro area, unless the ECB delivers the interest rate rises already priced in by markets. The central bank will struggle to lift rates much from the current level of minus 0.5 per cent given the threat to the region's recovery posed by Russia's invasion of Ukraine and the resulting rise in energy prices, Ahmed said.
"I think the ECB has missed the window to normalise policy because the growth shock from Ukraine will be much more severe in Europe," he added. "In our view they aren't getting back to zero this year, and that means negative-yielding bonds are not about to disappear."
Written by: Tommy Stubbington
© Financial Times