We haven’t written about government bond yields recently but there has been a lot of action in the bond market. Government bond yields have been falling globally which are an indicator that markets are expecting stagnant or falling interest rates. 10-year government bonds are the most tracked and traded and yields have mostly fallen compared to a year ago.
The U.S. 10-year Treasury bond yield is now at 2.65%, down 19 bps from a year ago.
The U.S. 10-year Treasury constant maturity yield minus the 2-year Treasury constant maturity yield spread has been a good indicator of past recessions. Yield curve inversion which happens when the spread turns negative and has preceded the last seven straight recessions. The 10-year Treasury constant maturity yield minus the 2-year Treasury constant maturity yield is the lowest since the last recession at only 10 bps.
We haven’t written about bond yields for some time. Government bond yields have largely been falling despite Central Banks announcing reductions or end to their bond buying programmes.
The only notable countries where yields are still up over the past year are the United States, Canada, Italy and Emerging Markets.
It wouldn’t appear that the market is anticipating interest rate rises in the short term. We will write about that in a few days but in the meanwhile here are 10-year government bond yields as of 14th July 2018 (figure in brackets indicate absolute 1-year change),
Everyone seems to be focussing on the equity markets recently, but equity markets haven’t really moved much over the past one month. Over the past month, major equity markets have lost between 1.5% to 4%.
The real action is in bonds and commodities. And trade seems to be flourishing too.
10-year government bond yields of major economies are lower by 5% to 40% (in relative terms not absolute terms) in just the past month. 10-year German bonds are down 12 bps over the past month. That wouldn’t sound much but they are down 28% from 42 bps to 30 bps. U.K. yields are down 8%, U.S. yields down 5%, Japanese yields down 40%. Even Greek yields are down 20% over just the past month. Does the market anticipate a pause in interest rate rises? It would appear so.