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Monday
Apr142014

Sovereign Yields Continue Lower

The top chart below shows the current yields on 10-year sovereign debt for some of the largest economies in the world.  In this chart we have also highlighted (in red) each G8 country to show where the yields on their long-term debt stand relative to the rest of the world.  Not surprisingly, most of the G8 countries have yields that are at the lower end of the spectrum.  Outside of Russia, which has its own country specific issues, the ten-year yields of the remaining seven countries are all in the bottom ten positions.  Japan currently has the lowest 10-year yield at a level of 0.61%, while Brazil has the highest with a yield of 12.6%!

Perhaps the most surprising aspect of current ten-year yields is that borrowing costs in the US are only the eighth lowest of the 24 countries shown.  US treasuries were once considered the safest of all fixed income investments.  Today, ten-year yields in the US are more than 100 basis points (bps) higher than ten-year yields in Germany and just 50 bps lower than 10-year yields of Spanish debt.  With regard to Spain, it was less than two years ago that there was a widespread concern over whether or not Spain would even be able to remain in the Eurozone!

While 2014 was a year where fixed income was once again supposed to underperform equities, so far the opposite has been the case.  In practically every major country, long-term sovereign debt yields are lower now than they were three months ago meaning that the prices of the bonds have risen.  As shown in the lower chart below, of the 24 major countries highlighted, the yields on ten-year debt have fallen for all but six countries, and outside of the Philippines and India, the increases in yields over the last three months have been less than ten bps.

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