Banks and financial analysts are scrambling to reassess their yield forecasts as bonds under-perform across the board – in the midst of a boom that saw the global bond market swell to $100 trillion.
According to a Bloomberg report, financial institutions such as the Bank of America have had to abandon the risk metrics they have relied on to date. The upheaval followed new gauges of relative yields released by Federal Bank of New York which discarded thirty years of research.
Index data compiled by Bank of America Merrill Lynch showed that bonds have returned an average of 3.89% this year, causing yields on 10 year Treasuries to decrease by over half a percentage point. Bloomberg found that benchmark yields had fallen in 24 of 25 developed nations tracked, closing below 3% for the first time in Spain and Italy.
The results sharply contradict industry predictions made at the start of the year. As central banks around the world tightened their monetary policies, analysts and observers anticipated a rise in yields. Instead, weak global growth, European disinflation and the financial implications of the Ukraine crisis sent investors clamouring for bonds.
The fallout has confounded traders and researchers, with many questioning whether bond forecasting models now have any value. Jim Bianco, president of Chicago-based Bianco Research LLC, said, “I don’t expect the consensus to be right, I’m just surprised by how wrong it has been.”
Data from S&P Global Market Intelligence suggest that the German lender is struggling to meet capital and earnings figures.
The central bank has tweaked its stimulus programme and is making a fresh effort to push Japan’s inflation rate above its 2% target.
A total of US$4.88 trillion of debt has been sold so far this year reports Dealogic, close to the level of 2007 when US$4.91 trillion of bonds were issued over the same period.
The German industrial gases group has ended talks with its US peer on a potential union to establish a market leader.