From record lows just after the Brexit vote – government bond yields have spiked higher. Ten year bond yields have risen from 1.36% in the US to 2.2%, from -0.19% in Germany to 0.31% and from 1.81% in Australia to 2.64% in four months. This in turn has led to sharp falls in high yield share market sectors like real estate investment trusts and utilities that had benefited from the fall in bond yields as investors sought higher yields. The back-up in bond yields has been given an added push by the election of Donald Trump as President of the US. So this all begs the question – have we seen the end of the 35 year super bull market in bonds?
What does it mean for investors?
- Receding deflation fears, signs of stronger growth and increasing signs of a policy rotation away from relying on monetary policy towards fiscal stimulus (supported by Donald Trump’s election as US President) add to evidence that the 35 year rally in bonds is likely over.
- This will dent bond returns and those from high yield share market sectors. But the end of the bond bull market is likely to be gradual and so real assets are likely to still see some benefit from a search for yield.
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