US 10-year bond yield hits a 4-year high, is the US now an exception?

Greece (Moody’s Credit Rating: Caa2) is now paying 83 bps lower interest on 2-year bonds than the US (Moody’s Credit Rating: Aaa). Is the US now truly the exception?

First some bond yields:

10 Year Bond Yields, Figures in Brackets indicate 1-year changes

US 2.9463 (+0.53%)
UK 1.55 (+0.36%)
Japan 0.056 (-0.03%)
Switzerland 0.16 (+0.32%)

Eurozone
Germany 0.72 (+0.45%)
France 0.99 (-0.06%)
Italy 2.05 (-0.15%)
Spain 1.51 (-0.18%)
Portugal 2.0 (-1.98%)
Greece 4.44 (-2.85%)
Netherlands 0.77 (+0.17%)

Australia 2.86 (+0.02%)
Canada 2.35 (+0.63%)
New Zealand 2.99 (-0.31%)

EMs
Brazil 9.84 (-0.45%)
India 7.71 (+0.77%)
Mexico 7.7 (+0.40%)

2 Year Bond Yields, Figures in Brackets indicate 1-year changes

US 2.27 (+1.05%)
Japan -0.15 (+0.11%)

Eurozone
Germany -0.49 (+0.41%)
France -0.39 (+0.06%)
Italy -0.23 (-0.35%)
Greece 1.44 (-6.77%)
Portugal 0.01 (-0.01%)

Australia 2.06 (+0.20%)
South Korea 2.18 (+0.56%)
Canada 1.83 (+1.05%)

BRICS
Brazil 7.57 (-2.48%)
Russia 6.49 (-2.04%)
India 6.84 (+0.34%)
China 3.54 (+0.69%)
South Africa 6.76 (-0.89%)

Countries with zero or negative interest rates (details here) are mostly paying negative rates on 2-year bonds. The Market doesn’t think the Eurozone, Switzerland and Japan are going to move away from their zero or negative interest rate regime. Italy and Portugal which just a few years ago were deemed too risky have a negative yield on 2-year issuances.

10-year yields are mostly headed higher, but the divergence is decreasing across the Eurozone countries. Again, weaker economies seem to be doing rather well.

Can Governments really afford higher interest rates? (Read here)

The US dollar has lost significantly against a basket of currencies in both 2017 and 2018 (so far), details here.

A weaker currency for a nation that imports more than it exports means higher inflation which in turn (normally) means higher bond yields.

The US recorded a $53.1 billion trade deficit in December 2017, the highest trade deficit since October 2008. And bond yields continue to rise, looks like the US is truly an outlier now.

Leave a Reply

Your e-mail address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.