8th September 2011
Mindful Money's economist blogger Shaun Richards says: "It is a long running theme of mine that bond yields are under-represented. We get lots of media headlines about cuts in the Bank of England base rates but much less about moves in longer yields.
"They only get a mention when there is a crisis of one form or another like Greece for example. Yet they are certainly generally as important and at this time because of events are more so. Partly because short-term ones mostly have nowhere to go…"
How can bond yields help determine the economy's health?
Shaun Richards says on his blog: "Indeed here is a rule of thumb for you – a sign of trouble is short-term government bond yields moving ahead of the official interest-rate and the size of the problem is indicated by how much they do so. Regular readers will be aware I have used this as a measuring stick during the Euro zone crisis."
"So many countries have long-term bond yields which are so low they are either in a bubble or they are set for recession or some combination thereof. I have been arguing this for some time and was intrigued to see Martin Wolf of the FT join in the debate this week.
Martin Woolf writes in the Financial Times (paywall): "HSBC forecasts that the economies of high-income countries will now grow by 1.3 per cent this year and 1.6 per cent in 2012. Bond markets are at least as pessimistic: US 10-year Treasuries yielded 1.98 per cent on Monday, their lowest for 60 years; German Bunds yielded 1.85 per cent; even the UK could borrow at 2.5 per cent. These yields are falling fast towards Japanese levels. Incredibly yields on index-linked bonds were close to zero in the US, 0.12 per cent in Germany and 0.27 per cent in the UK."
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