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 2011, 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.
Global ten-year sovereign bond yields
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.
Eurozone ten-year sovereign bond yields
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 grew, yields spiked up sharply.
Spanish and Italian three-year sovereign bond yields
Source: Bloomberg
(Click on the chart for a larger version)
• Charts updated 24 May 2013
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)
(23 May 13)
With government bonds yielding less than inflation, prices must fall at some point. Phil Oakley explains the impact of a crash and asks whether you should be dumping your bonds now.
(13 May 13)
In theory at least, Moody's was absolutely right to downgrade the Co-op Bank, says Bengt Saelensminde. But these bonds are still a great buy for bold investors.
(02 May 13)
Investors have snapped up Apple's debt in the biggest bond sale in corporate history.