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Saturday, March 27, 2010

Global Bond Yields

Globally, bond yields tend to move together as traders arbitrage by trading the debt of various countries. This past week (as shown below), the yield on the 10-year U.S. Treasury rose sharply while yields on the same maturity in other countries were mixed. Given the poor results of the past week's auctions, and the data from the Treasury International Capital Report, this may be another indicator that the long-awaited rise in rates has started. Investors in bonds need to be cautious.

                                   3/5       3/12     3/19       3/26
10 yr.German             3.16      3.17     3.11       3.15
10 yr. Italy                 3.95      3.96     3.95       3.92
10 yr. UK                  4.06      4.1       3.95       4.04
10 yr. Japan               1.32      1.35     1.37       1.38
10 yr Australia            5.48     5.69     5.68       5.75
10 yr.U.S.                  3.68     3.7       3.69       3.85


  1. Sooner or later supply is going to overwhelm the demand for government bonds. I've been thinking this was coming for a while, and maybe this is the beginning. Higher interest rates are going to be required to keep attracting money to the massive issuance of US bonds that are coming for the foreseeable future. I know if I were the Chinese I'd rather invest all the dollars they have in real estate and businesses than government bonds.

  2. I agree. David Smick, author of "The World is Curved" has an interesting op-ed today in the Washington Post on the latest explanation of why rates have stayed so-low for so long. He argues that banks, because they are not lending, are using the massive reserves injected into the system to buy bonds. If, and when, banks start lending, rates will take off. Of course for the recovery to continue banks will have to lend.