When countries go bust, others follow suit. Not even our Canute central banks will be able to hold back the coming wave, says Jonathan Compton.
It's easy to become confused about bonds – the term covers a wide range of financial products. Here, Ed Bowsher explains the main types of bond.
In this video, Ed takes a look at UK government bonds – how they work, why they are important, and whether you should invest in them.
MoneyWeek bond watch
Government bond yields around the world started climbing again in Autumn 2010. This showed investors getting more jittery about a toxic mix of soaring state borrowings and rising inflation, and so demanding bigger returns as compensation.
Global ten-year sovereign bond yields
America's ten-year bond yield is arguably the world's most important market indicator: it sets the cost of global long-term borrowing. As with other government bond yields, it falls (prices rise) when economic growth and inflation decline, because the fixed income stream paid by sovereign debt becomes more valuable. Quantitative easing (central bank bond-buying) has lowered yields further.
But in mid-2012, yields bottomed, except in Japan where they've since followed suit. Economic growth is now reappearing, while inflation and state debt concerns are still present. A global bear market in bonds now looks a real possibility, led by US Treasuries. That would make borrowing more expensive everywhere.
Eurozone ten-year sovereign bond yields
On the edge of the eurozone, rising default fears have been sending peripheral countries' sovereign debt yields soaring. The rough line in the sand so far is 7% - when yields breach that, it looks like the point of no return.
How will this play out? Watch this page to keep a close eye on those yields - they're a great early warning indicator of trouble ahead.
Spanish and Italian three-year sovereign bond yields
Here's the chart of Spanish and Italian three-year bonds. As investors' fears about these countries' finances grew, yields spiked up sharply.
Bonds: the MoneyWeek view
October 2014: The biggest bubble around Government bonds have never been this expensive, and yields could slip further if there is a deflation scare. Europe looks especially vulnerable. Investors have also poured into corporate debt in recent years. At these prices, the risk of a fall easily eclipses the scope for further gains.
• See our view on all the major asset classes here.
Investors should take a diversified, global approach to buying bonds, says fund manager Charles Zerah. Here, he tips two to add to your portfolio.
It’s easy to see how a sell-off in bonds might get out of hand, says Cris Sholto Heaton. Investors should take note.
The higher yields on ‘junk’ bonds may be tempting, but are they worth the extra risk? Cris Sholto Heaton investigates.
Yields on high-risk corporate bonds plummeted to a record as prices have soared.
Investors are bingeing emerging market debt. But this ‘irrational exuberance’ could result in a nasty hangover
Jitters over a Portuguese bank bring back memories of the worst of the eurozone crisis.
Stocks are risky and bonds are safe – or so the thinking goes. But as Merryn Somerset Webb explains, things are not nearly so simple.
Inflation is toxic for most bonds. But there is one type of bond that is immune. Phil Oakley explains how index-linked bonds work, and picks the best way to invest in them.
Asset allocation is at least as important as individual share selection. So where should you be putting your money? Here’s our monthly take on the major asset classes.
Inflation is finally happening in America, but the Federal Reserve can’t see it. That may mean raising interest rates earlier and further than expected, which could cause severe turbulence for stocks and bonds.
FREE investment email
In under 3 minutes a day you too can become a savvy investor. MoneyMorning is our free daily investment email. With MoneyWeeks top writers contributing, a must have for any serious investor.