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Wednesday
Aug062014

Incredible Shrinking Yields

Remember a few years back when everyone used to look at the 1% yields on long-term Japanese sovereign debt and write it off as a phenomenon specific to Japan?  Well that so-called Japan specific issue is now firmly entrenched in Germany and Japan, and with a yield of 2.08% Canada is not far behind. Meanwhile, Japan has graduated down to the sub 1% club!  

 

With the exception of Russia, long-term sovereign yields across the G8 are at levels that were unthinkable a few years ago.  Even in Russia, where the current geo-political situation would make you think the country would have trouble borrowing money in the capital markets, 10-year sovereign debt is yielding just 5.29%.  Keep in mind that this is a country that defaulted on its debt 16 years ago and is also being threatened with increased sanctions over its aggression with the Ukraine.  Elsewhere in the G8, the US is in the middle of the pack at 2.44%, while Great Britain (2.51%) and Italy (2.80%) are both also under 3%.

The table below lists the current 10-year local currency sovereign debt yields of each G8 country, as well as their changes over the last day, week, month, three and six months.  As you can clearly see, everywhere except Russia (and Italy in the last week), yields have been on the decline.  Even as calls for a peak in fixed income have been around for months now, the appetite for sovereign debt hasn't been satisfied.

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