Finally, long-term government bond yields are starting to realise that global growth is robust. Inflationary pressure is building, and central bank balance sheets have peaked. US 10-year bonds broke trading resistance at 2.40% and the US 30-year bond broke the 200-day moving average at 2.91%.
I remain firmly of the view that world government bond markets offer “return-free capital risk.” The much greater risk from here is capital losses for bond investors; there could well be substantial capital losses over the next few years. This also has ramifications for stock and sector weightings in global and domestic equities.
We have entered the most sustained period of synchronised global growth since the Global Financial Crisis. All major developed and developing economies are advancing, with China and the Eurozone leading the growth engine. Every economic indicator we look at confirms this view, and it seems the bond market is finally working this out with bond yields rising and bond prices falling.