Is the great US bond bubble coming to an end? Could be. There has been no shortage of people warning that this day would come. Type "end of bond bubble" into your search engine and you'll see plenty of predictions (many printed in Moneyweek).
Last year, they began to look more credible - Jim Grant called his October newsletter "The Death of Bonds" and back in mid-December, Halkin Services reported Ross Clark of Institutional Advisors noting that bond prices had "reached exhaustion levels". It took another few months for these calls to be validated but here we are: "elite government bond markets have finally come a cropper".
Last week, as Halkin puts it, "benchmark bond prices that had appeared well supported in a tight trading range were suddenly unsupported in a wide trading range."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What caused the shift? It might be worries about the lack of new quantitative easing (QE) in the US; it might be the news that the US ran a $232bn budget deficit in February; or perhaps it is something to do with the wave of good news sweeping the US economy. After all, if deflation isn't the biggest risk out there, and if US nominal growth is knocking around 4%, who wants to be holdingten-year bonds offering a yield of under 2%?
But it might also be something to do with China. I spoke to CLSA's Russell Napier yesterday and he pointed out that in thesecond half of last year, China made its "largest ever sales of Treasuries, ending an 18-year-era of mass printing of undervalued renminbi and a massive distortion to the US-dollar yield curve".
In December alone, China sold at least $20bn in US Treasuries. From the end of 2007 to the summer of 2011, foreign central banks bought around 45% of Treasury issuance (so something in the region of $2.2trn). Since then, they have been not buying but liquidating -something that clearly affects demand, and then yields.
It also means that someone else is going to have to start financing the US (savers?). And most importantly of all, it represents the beginning of a very major shift in post-crisis global rebalancing. I'll return to this in more detail next week.
-
British Airways revamps Avios scheme bringing down flight prices to £1With the new Avios part-payments scheme you can now bag a British Airways flight for as little as £1
-
RBS to close a fifth of branchesRoyal Bank of Scotland plans to shut 18 branches across Scotland, resulting in the loss of 105 jobs. We have the full list of closures.
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
