GLOBAL - Ten-year government bond yields have been surging across the board since early November, according to AXA Investment Managers, jumping to 5.1% from 4.2% in the US, to 5% from 4.4% in the UK, and to 4.9% from 4.3% in Germany.
They have even crept up in Japan, to 1.3% from 1.2%. Meanwhile, the US yield curve has steepened, with a spread of about 200bp between 2-year and 10-year notes, versus approximately 110bp at the beginning of November.
AXA says the spike comes at the same time as a shift towards equities and so the question that begs to be answered is whether or not markets are trading on the hope of a strong recovery in early 2002.
In its latest Economic Viewpoint Taking AXA says the bond market has seemingly factored in an estimated growth rate of about 3.6%, but this figure does not tally with the 1.8% consensus forecast for G7 growth.
AXA continues: “This misalignment suggests that the bond market is anticipating an average economic expansion for next year at a level that is far above current forecasts. Our scenario is that nominal growth will rise in the second half of 2002, hitting 4.5% by year-end (3% GDP growth and 1.5% inflation). If our prognosis is correct, 10-year bonds could be generating yields of around 6% by year-end 2002.”
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