An interesting item on the world today..... Aivars Lode
Article written by Alan Kohler, Editor of the Eureka Report in Australia:
Two weeks ago I wrote here in my Saturday Briefing “Bonds: it’s a bubble”. Since then the yield on the Australian 10-year bond has bubbled from 1.23% to 0.9425% yesterday, having dipped below 1% for the first time on Tuesday.Yesterday’s new low was prompted by the RBA basically giving up on inflation and unemployment, forecasting that unemployment will rise by 2021 and that inflation won’t hit the target range (2%) until mid-2021. Unsurprisingly, given that, Governor Phil Lowe is muttering about zero interest rates and quantitative easing. And unsurprisingly the bond bubble had another bubble.What the hell?
It has been an extraordinary couple of weeks in the global bond market:
- On top of the Aussie 10-year yield going below 1%, the US 10-year bond yield fell below 2% last week and is now 1.699%, approaching the all-time low of 1.36% in July 2016;
- The stock of global bonds trading on negative yields broke through $15 trillion;
- Every single German government bond, from one month to 30 years, now trades on negative yields;
- The Austrian 100-year bond, face value 100 euros, now sells for 185 euros, 68% higher than in December – easily outperforming the Nasdaq (up 29%).
- Countries totalling 30% of the world’s GDP currently have an inverted yield curve;
- 16 central banks have now cut interest rates this year by a total of 1060 basis points, the latest being New Zealand, India, and Thailand this week.
There are basically two schools of thought about all this: mine – that it’s a bubble – and the also common, more pessimistic view that the bond market is heralding a global recession. As Gluskin Sheff’s resident pessimist Dave Rosenberg wrote on Thursday: “At this stage, it’s a question of when, not if.”On the other hand John Authers, writing in Bloomberg, thinks this might be the bond market’s equivalent of the Nasdaq in early 2000 … its dot com moment.If you’re wondering which scenario would be worse for investors in equities, there’s no doubt about that: global recession of course.
