Low yields are here to stay
By Lars Christensen, Markets & Money Advisory Founder and CEO, LC@mamoadvisory.com, @
Today we have published the September edition of Global Monetary Condition Monitor our monthly flagship publication, which covers monetary policy in 26 countries around the world and gives an overview of global monetary matters and market implications of global monetary trends.
In this edition of the Global Monetary Conditions Monitor, we focus on why global bond yields are so low compared with what we were used to prior to 2008.
Contrary to the perception of many policymakers and commentators, we use an econometric study of 10-year bonds in 21 countries since 2000 to show that yields have not been driven lower by lax monetary policy.
Instead, the decline has been driven by three factors: low inflation expectations, ageing populations and tighter financial regulation (Basel III).
As for monetary policy, it has not been too easy. The problem is just the opposite: monetary policy has been too tight and inflation expectations have fallen in consequence. This has put downward pressure on rates and yields over the past decade.
In this edition of the Monitor, our econometric study is also used to analyze the impact of recent and forecast demographic trends on global bonds. This analysis shows that demographic factors will also weigh on global bonds yields, skewing the risk decidedly to the downside.
Structural changes on the bond markets have also caused an increase in money demand across countries. This has significant implications for the conduct of monetary policy. Most important, central banks around the world – and especially the Federal Reserve – should re-think whether they can and should ‘normalise’ their key policy rates and balance sheets.
The price for a single 12-months subscription to Global Monetary Conditions Monitor is EUR 2,000 (EUR 1,000 for academic institutions and think tanks).
Make sure to visit our Research Shop where you can subscribe to Global Monetary Conditions Monitor.
As a special offer this month you can download the September edition of the Monitor for free here.