The great bond yield sell-off
Ten year bond yields in a number of western world economies have increased by an average 0.7% over the past year, as illustrated in the table below.
As headline inflation continues its decline, the sell-off in many countries’ bond yields indicates rising real interest rates.
Either inflationary expectations are up, or buyers want a greater risk premium.
If we look back several decades to December 1940, investors in US long bonds were to see a 67 percent decline in real terms, and a drawdown that was to last for over fifty years.
Time will tell if July 2012 will resemble December 1940 in terms of the trough in bond yields!
| Country | Historic Low | When | Yield at July 2013 | Change |
| US 10 Year Bonds | 1.39% | July 2012 | 2.61% | +1.22% |
| Australian 10 Year Bonds | 2.69% | July 2012 | 3.72% | +1.03% |
| UK 10 Year Gilts | 1.43% | August 2012 | 2.31% | +0.88% |
| German 10 Year Bunds | 1.16% | July 2012 | 1.68% | +0.52% |
| French 10 Year Bonds | 1.83% | December 2012 | 2.27% | +0.44% |
| Japanese 10 Year Bonds | 0.61% | March 2013 | 0.80% | +0.19% |
| AVERAGE | +0.71% |
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Robert Pearson
:
I notice a proposed tax on lenders, The borrowers should also pay if borrowing/lending money is taxed. My preference would be for the polluters to pay more tax, or better still the directors of such companies.
komal.pandya.940
:
So David,
I think it might not be the best time to invest in international bonds, as interest rates are expected to rise or opportunity cost of money is driving more towards equities(though there is no value)…But what about domestic bonds? Interest rates are expected to remain low or decline…in such situation would investors benefit (considering they are hedges to international interest rates?)
Would it be a good time to invest in Managed funds that have diversified range of bonds?