Since the beginning of the year, government bonds across the globe have gone on a tear, pushing in some cases to record highs, as concern about a global slowdown has prompted investors to price in the prospect of further aggressive central bank easing from the likes of the European Central Bank and Bank of Japan.
The US Federal Reserve has also come under increasing pressure to start reversing its recent policy of raising rates and quantitative tightening.
The increase in prices of European government debt has been especially illuminating, given that it has helped push yields in German bunds to new record low negative yields, which means that if held to term, investors are guaranteed to get back less than they invested. The cash value of government bonds with a negative yield has gone from $8trn to $16trn this year, an eye-wateringly high number which helps illustrate the rising scepticism investors have about the global economic outlook.
In Denmark, banks are offering mortgages paying interest to borrowers in a world that is increasingly being turned upside down. In Switzerland, banks are now charging depositors 0.6% per annum for holding more than €0.5m in cash with them.
The move higher in government bond prices shows little sign of slowing, given increasing signals from central bankers that they are likely to ease policy further in the coming months. This means that we could see further gains in bond prices globally, with the prospect that US yields could also move to record low levels in the coming weeks and months.
Disclaimer: To stop receiving market commentary emails from David Madden, please reply to this email with ‘Unsubscribe’ in the subject line. CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.