Bonds
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.
Since April, mainstream sovereign yields have been dropping back, ie, bond prices have gone up. Worries have increased about global growth - if this proves lower than expected, the fixed income stream paid by government bonds becomes more valuable.
But with commodity prices still firm, mounting costs are still a major concern. In addition, government deficits fears are still growing. And since end-June, global yields have become very volatile.
In short, then, a major inflation/deflation battle is looming in the bond markets. At the moment, yields are plunging. But who will win? Keep watching this page to find out.
Source: Bloomberg
(Click on the chart for a larger version)
Meanwhile, on the edge of the eurozone, it's still a very different story. 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? Again, watch this page to keep a close eye on those yields - they're a great early warning indicator of trouble ahead.
Source: Bloomberg
(Click on the chart for a larger version)
And here's the chart of Spanish and Italian three-year bonds. As investors' fears about these countries' finances grow, yields are spiking up sharply.
Source: Bloomberg
(Click on the chart for a larger version)
• Charts updated 8 February 2012
For a good introduction to the basics of bonds and bond markets, and how they work, see Tim Bennett's video tutorials:
• Beginner's guide to investing: bonds
• Beginner's guide to investing: corporate bonds
• Why do governments go bust?
Recent articles
(3)
(06 February 12)
Portuguese bond yields have hit euro-era highs following a downgrade to junk status by ratings agency Standard & Poor's. How big a hit will bondholders have to take to avoid a default?
(06 February 12)
Economic recovery spells falling government bond - or 'gilt' - yields as investors are prepared to take greater risks again. But how do you short a falling gilt yield? Tim Bennett explains.
(31 January 12)
An ugly monster of a bubble could be about to burst in UK government bonds. Tim Bennett explains how spread betters can play it.