Have Government Bond Yields Bottomed? Essay

1946 Words8 Pages
Have Government Bond Yields Bottomed? The media has recently spent much attention on events in the UK Gilt market, where yields have been rising against a backdrop of a depreciating sterling exchange rate. Investors clearly fear, therefore, that the UK will soon be importing inflation. Approximately 66% of UK imports are invoiced in US dollars, while 23% is billed in sterling and just 5% in Euros. In terms of assessing the threat of imported inflation, the prospective behaviour of Cable (£/S) is, therefore, critical. The UK 10-year gilt yield has increased 580 basis points since its mid-August low. The recent path of UK gilts is, however, somewhat analogous to other major government bond markets: yields have recently been creeping upwards. The German 10-year Bund yield bottomed in early-July, while the equivalent JGB measure followed suit later that month. Central banks were not necessarily at fault. The Bank of Japan (BoJ) has arguably been more exposed to criticism that monetary policy is close to hitting the buffers in terms of efficacy. Governor Kuroda recently announced the BoJ would be targeting the yield curve, where the aim of policy is to steepen the slope between the 10 and 30 year segments. Meanwhile, the European Central Bank (ECB) has refrained from adding further stimulus, although it is constantly reviewing its asset purchases. The Fed has stood pat during 2016 in terms of raising the federal funds target, despite periodic bouts of angst. Meanwhile, US

More about Have Government Bond Yields Bottomed? Essay

Open Document