Steeper creeper

19 September 2016 By Peter Thal Larsen Follow @Peter_TL

Yields on long-term sovereign debt have perked up across the developed world. Normally that’s a sign of optimism. Yet borrowing costs remain ultra-low. The upward drift most likely reflects uncertainty about central bank policy and worries about the effects of negative rates.

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The yield on benchmark 10-year U.S. Treasury bonds hit 1.734 percent on Sept. 13 - the highest level since Britain's vote to leave the European Union prompted a wave of risk-aversion in global markets.

Yields on 10-year British government bonds have recovered to 0.883 percent, from roughly 0.53 percent in mid-August. Yields on 10-year German government bonds turned positive on Sept. 9 for the first time since mid-July.

The Bank of Japan will consider reducing its purchases of super-long government bonds to give financial institutions such as insurers and pension funds a better environment for earning returns, Reuters reported on Sept. 14.

The yield on 10-year Japanese government bonds reached minus 0.008 percent on Sept. 12, up from minus 0.291 percent on July 27.

The yield on the country's 30-year debt has risen to around 0.57 percent, from just 0.04 percent in early July.

Bond yields have been below nominal GDP growth rates in the United States, Germany, Japan and the United Kingdom "for some time now", the Bank for International Settlements noted on Sept. 18. The BIS pointed out that for the past 65 years, 10-year bond yields have tracked broad trends in nominal GDP growth across those four countries "fairly well".

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