FYI: AT THE start of 2015, the yield on Germany's 10-year bonds was 0.54%, which probably did not look very enticing to investors. Now, however, the yield is just 0.1% and seems to be heading inexorably for zero. Already the average yield on all German debt is negative. A recent survey found that a net 84% of global fund managers thought bonds were overvalued.
How far can this go?
Regards,
Ted
http://www.economist.com/blogs/buttonwood/2015/04/bond-markets
Comments
From the article:
"A recent survey found that a net 84% of global fund managers thought bonds were overvalued.
How far can this go? That is the dilemma. In the long run, such a yield looks crazy; in the short run, not so much. The European Central Bank is buying bonds to the tune of €60 billion ($64 billion) a month. Betting against a purchaser with an unlimited credit card is like standing in front of a train. Nor does it matter whether or not you believe the evidence that the euro-area economy is recovering (something that would normally cause bond yields to rise). "In this monetary policy environment, short-term data don't matter" says Salman Ahmed of Lombard Odier, a fund manager.
One can only have mixed feelings about this. In some respects, the argument for lower bond yields is a "this time is different" case familiar to those who lived through the dotcom bubble (and thus deeply suspect). On the other hand, people have been calling the top of the Japanese bond market for more than a decade, without success. Back in September 2011, the British weekly, the Spectator wrote that
“The worldwide bond bubble is going to burst”
>>>Euro area, all other stuff being "normal"; is a few years behind the U.S. in central bank processes. A large part of this is the legal structure of the ECB relative to the 19 member countries. Also, Greece is still in the worry zone for some, although the reported impact of Greece's GDP to the Euro area is about 2% of the total.
Still fun times with investing, er........legal gambling, eh? And yes, IMHO; this time is different, as it must be, relative to the dynamic movements of economies.
Take care,
Catch