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.
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