ep 397 | Are bonds back to the old normal?
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What are the current global bond yield levels and why are they rising?
On point with Craig's Investment Partners. The information provided here is general in nature and it's not financial advice. It doesn't take into account your situation, objectives, goals, or risk tolerance. All investments are subject to risk and none are guaranteed. Before you make any investment decisions, we recommend you contact an investment advisor. For more information about our services or to view the Craig's Investment Partners Financial Advice Provider Disclosure Statement, please visit. our website which is craigsip.com. Welcome to On Point. I'm Mark Lister, Investment Director at Craig's Investment Partners, and I'll be talking about a range of topics including economics, portfolio strategy, investor education and anything else that's happening out there in financial markets.
The big story across financial markets in recent weeks has been global bond yields, which have been heading higher, and some of the numbers starting to look pretty eye catching. The US 30 year Treasury yield finished last week at 5.4%, which is the highest level that we've seen since 2007, almost two decades ago. The more closely followed 10 year Treasury yield In the US has also been heading higher. It is just below the 16-year high of 5% that it touched three years ago. In the UK, the government has issued 30-year debt at a yield of 5.8%, while in Japan, the 10-year bond yield has pushed through 3% for the first time since 1996. Here in New Zealand, our 10-year bond yield, our government bond yield.
How are budget deficits, AI‑driven corporate debt and oil prices driving higher yields?
That is is 5%. So we're at similar levels to our US counterpart right now. At 5%, that's much higher than we were at a year ago, but we're still somewhere below the 12-year high of 5.5% that we reached in 2023. So we do have to go a little bit higher to get to those levels. Now, all of these global bond yields are interconnected because the world is interconnected. These days, and there are many reasons that they've been rising. A lot of economies out there are running budget deficits, government debt pretty much everywhere is high and projected to keep going higher, and that means there is a lot of debt issuance in the years ahead. Here's a positive reason, though, and this is one of the ones that we don't talk about or focus on enough when interest rates are going up, when bond yields are going up, the global economy.
Economy is in decent shape. It has been much more resilient than expected, and that tends to push up interest rates. Plenty of people also talking about inflation, watching oil prices, thinking about all of those sorts of risks, and picking inflation to be structurally high in the future, too. And that's something I've talked about. 3% is the new 2%, all those sorts of themes that are important and very relevant at the moment. You've also got the AI infrastructure boom, which has prompted many of those large credible companies to issue debt themselves to fund those developments. And what that means is all of these governments around the world, they no longer have the monopoly. They don't have the market cornered on high-quality debt because you've got these other businesses, Google and so forth, who are issuing bonds, and they look quite attractive to investors, very low.
Why does the author say we’re moving back to the “old normal” for bond yields?
risk because of the size of those companies. So governments are needing to compete with all of those businesses more fiercely for capital when they want to borrow money, because the people that are lending those entities money, you know, if you've got money that you want to lend to a government or a corporate, uh, because that's what you're doing when you buy a bond, you're essentially lending that entity money, uh, you've just got more options than you used to have in the old days. So So, long story short, bond investors are still happy to lend money to the US government, other governments around the world, but all of those factors that I've talked about are making them demand higher compensation for doing so.
We're no longer willing to lend the money for 10 years, 20 years, 30 years at 3, 4%. We want 5% or more to lock up our money for that length of time.
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Chapters
7 chapters
1
What are the current global bond yield levels and why are they rising?
0:00–1:38
2
How are budget deficits, AI‑driven corporate debt and oil prices driving higher yields?
1:38–3:18
3
Why does the author say we’re moving back to the “old normal” for bond yields?
3:18–5:17
4
How do historical yield averages (pre‑2008) compare to today’s levels?
5:17–6:38
5
What does Jim Reed’s GDP‑yield relationship tell us about where yields should sit?
6:38–8:00
6
How can higher bond yields benefit savers and conservative investors now?
8:00–9:25
7
What strategies should investors use to manage risk and duration in a high‑yield environment?
9:25–11:05
Speakers
1 identifiedMore from On Point
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