Submitted by: Submitted by erisova
Views: 192
Words: 867
Pages: 4
Category: Business and Industry
Date Submitted: 11/12/2012 11:53 AM
Buttonwood
The cycle turns
The developed world may have seen the low in bond yields
Mar 24th 2012 | from the print edition
EQUITIES may be enjoying a bull run
but the government-bond market has
turned sour. Having bottomed at 1.67%
in September, the yield on the ten-year
Treasury bond has risen to 2.38%, with
the sell-off accelerating in the past two
weeks.
A rise in yields from what were very low
levels, in historical terms, is not that
surprising. The economic data have
been better than expected since the
start of the year, particularly in America, calming fears of a global
recession. A torrent of central-bank loans to euro-zone banks and
Greece’s debt-restructuring deal have made investors less nervous
about a break-up of the euro, removing the appeal of Treasury bonds as
a haven.
The big question is whether this is a turning-point in the bond market.
The chart shows how the rise and fall of Treasury-bond yields over the
past century-and-a-bit divides into very long phases. Chris Watling of
Longview Economics points out there has been a remarkable regularity
to the past three cycles—a 29-year downtrend, followed by a 32-year
uptrend and another 31-year downtrend lasting to the present. This
pattern is probably a coincidence but it does illustrate that bond-market
cycles are rather longer than those in the equity market. Mr Watling
points out that the early stages of bond cycles (1920-29, 1949-68 and
1982-2000) have been associated with equity bull markets while the
latter stages (1929-49, 1968-82 and 2000 to date) have been
associated with bear phases.
The big bear markets in bonds were associated with higher inflation.
There was a brief inflationary period associated with the first world war
and a much longer burst of rising prices after the second world war
which culminated in the 1970s. Some fear the inevitable response to
the current crisis is that countries will attempt to inflate away their
debt.
But there is not much sign of this in the consumer-price...