Bond Yields Are On The Rise

 | Dec 19, 2019 09:51

The US 10-Year Treasury yield is up to 1.92%, edging closer to the 2% threshold it hasn’t been able to reach since July. In Germany, the 10-Year bond yield has risen to -0.25% from as low as -0.74% early September.

One likely factor impacting bond yields is that the major central banks are now on hold for the foreseeable future. Only a significant worsening of the global economy would make central banks ease even more. At the same time, it is plausible that bond markets are starting to reflect better GDP growth next year. After a very slow start, growth in developed countries will gradually improve, whereas growth in emerging countries apart from China will accelerate. So far, however, the uptick in bonds is pretty modest.

What could push bond yields more decisively higher is if inflation starts to firm. Very few investors seem to think this will happen. However, relatively tight labor markets, a very accommodative stance of central banks and a cyclical recovery on the way combined with structural forces like globalisation changing, inflation risk could become a game changer later on.