The global bond rally continued apace on Wednesday, as the market is increasingly convinced that weak global growth, stubbornly depressed inflation and a return to accommodation by central banks will push yields ever lower.
In the US, 10-year yields fell to 1.94%, a new low for the year, following Donald Trump’s announcement of two new Fed nominees who will likely support the push for lower rates.
In Germany, 10-year bund yields have now converged on the depo rate at -40bps, a remarkable state of affairs that speaks to the “Japanification” narrative.
Meanwhile, 10-year yields in Belgium fell below zero for the first time, where they’ll join Germany, Finland, Netherlands, Austria and France in negative territory.
Speaking of France, 10-year yields are now -0.09%.
News that Christine Lagarde will succeed Mario Draghi likely suggests policy continuity and continued accommodation as long as inflation and growth are tepid in Europe.
All of this underscores the “marking to misery” trade, and suggests any bank that hasn’t yet slashed their global bond yield forecasts will likely fall in line sooner rather than later.
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“The unstoppable global fixed income rally gained further steam overnight… with an escalation of the ‘dovish’ impulse”, Nomura’s Charlie McElligott wrote Wednesday, citing a weak Caixin services PMI print in China, the Lagarde news, Trump’s nominees and a comment from Mester about growth possibly slowing more than the Fed expects in the US.
For the contrarians out there, good luck fading this epic rally.