Talking Points:
• Global government bond yields have marked a significant rebound (bond prices have declined)
• For benchmark 10-year US Treasury and UK Gilt yields, we could attribute this to rate speculation
• However, European, Japanese and Chinese yields (QE laden) suggests something else is being signaled
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Global government bond yields have markedly reversed course these past two months, but the historical implications may not apply to this situation. In previous periods when yields have risen globally (prices drop), it has represented rising confidence in economic activity or an increase in the market's risk profile - alternatively labeled 'risk appetite'. However, against current conditions we have seen economic activity level off and stagnate while sentiment is already stretching the reasonable bounds of the current fundamental landscape. For US Treasuries and UK Gilts, we could attribute gains to interest rate expectations. Yet, that shouldn't be the case for Euro-area, Japanese or Chinese fixed income where stimulus is prevalent. Perhaps this is not a rise in confidence but rather its loss. Is the market showing the limits to its confidence in QE and other extraordinary monetary policy programs? We discuss this in today's Strategy Video.
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