Since the UK voted to leave the EU on June 23, government bond yields around the world have collapsed to new lows as central banks in Japan and Europe tried to stimulate moribund economies through bond-buying programs and negative-interest-rate policies.

Stay Positive: How To Go Global And Avoid Negative Yields

On Tuesday of this week, yields on government bonds from Germany, the UK, the US, Switzerland, France, Denmark and Sweden fell to fresh historic lows. The declines continued into Wednesday when the yield on Japan’s benchmark 20 year government bond fell below zero for the first time according to Tradeweb.

It’s unlikely this trend will go into reverse anytime soon. These lower yields reflect expectations that central banks around the world adopt new unconventional monetary policy tools boost economic growth. Bank of England governor Mark Carney has already indicated that the BoE will look to lower its key interest rate over the summer in response to the economic uncertainty that has followed Brexit. Meanwhile, it’s now widely expected that the US Federal Reserve will put off any further tightening of monetary policy until the end of this year or the beginning of 2017.

EU: Banking sector remains under-pressure, also due to ever-more negative yields environment and flatter curves

But with more than $13 trillion of government bonds now trading with a negative yield, concerns are starting to grow about how central banks will continue to implement their bond buying programs going forward. A continuation of the current programs will push yields even further into negative territory, which could create systematic risk in the financial system as investors charge into more illiquid assets to find returns.

Negative yields may be a result of market structure

Analysts at CLSA believe there’s more to the negative yield phenomena than just central bank buying. Specifically, CLSA’s analysts speculate that while the collapse in government bond yields does reflective deflationary concerns, there could be a technical factor at work here.

Jeffrey Gundlach Negative Yields, ECB QE [Slides]

Consider this, due to post-2008 regulation and the introduction of onerous capital requirements, US primary dealers’ net holdings of corporate debt securities have declined by about 80% since October 2007. As a result, government bonds remain the most liquid yield assets available in an increasingly illiquid fixed income universe and institutional investors are desperate own government securities to hedge their illiquid higher yield “credit” instruments as recent history has shown that when “credit” sells off, government bonds rally.

Negative Yields

This demand for government bonds as a hedge is only driving yields lower and the fundamental lack of liquidity in the credit markets doesn’t help the situation.

The ratio of US mutual funds’ and ETFs’ holdings of corporate bonds over brokers’ and dealers holdings’ has soared from 1.7 times in Q2 2007 to 31 times in Q1 2016 according to the Federal Reserve’s flow of funds data. Government bonds are themselves also becoming more illiquid as central banks focus on these instruments with their QE programs.

Take Japan for example, where the Bank of Japan has been buying more than the net issuance of government bonds. The peak trading volume of JGBs in April 2012 was ¥123 trillion, but trading volume collapsed to just ¥15 trillion in May of this year.