are flirting with the 5.10% area. Even in Japan, 30-year yields have surpassed the 3% level.
Bond markets are on fire again all around the world.
Let’s make things clear: this is not about the US only, it’s about a bunch of countries acting as the US does.
Here is the unfriendly policy mix that long-end bond markets are hating:
1. Core inflation above target
2. Central Banks communicating a dovish stance with forward rates below neutral
3. Governments loosening their policy stance with fiscal deficits
On top of this, there is also a demand/supply imbalance emerging.
Fiscal deficits expand the supply of bonds, and the marginal buyer is now asking for a higher compensation (higher yields) to take on long duration risk given the cocktail above.
The chart below shows the YTD increase in 30-year yields (in bps) for a basket of countries behaving as described above.
US, Japan, Canada, Australia and the UK are all embarking in looser fiscal policy with above target and their Central Banks keep having a proactive dovish stance.
Do you think the bond market will continue revolting until governments and Central Banks adjust their policies?
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