Global Bond Yields and Interest Rates
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(Please see updates for this blog: update 07Jul2022 and update 05Mar2022)
Major central banks globally have been following ultra loose monetary policies, by keeping interest rates artificially lower even though inflationary pressures have been building up considerably since the beginning of 2021.
In normal times, central banks would have raised interest rates to keep inflationary expectations and rising inflation in check. But most of the major central banks, like, the US Federal Reserve, Bank of England, the European Central Bank, Reserve Bank of Australia and Reserve Bank of India, have kept their interest rates unchanged in 2021.
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These central bankers have been arguing that the current inflation is transitory, buoyed by broken global supply chain mechanism following the disruptions caused by the COVID-19 Pandemic.
Let us see how the global bond yields and interest rates of major nations have changed in the past six months:
Table 1: Data as on 29Nov2021:
Table 2: Data as on 21May2021:
As can be observed from the above two tables, major central banks have not raised the interest rates in the past six to nine months except those of Brazil and Russia. Brazil has raised its benchmark interest rates from 3.5 per cent to 7.75 per cent and Russia from 5 per cent to 7.5 per cent to rein in runaway inflation.
During this period, Denmark has further lowered its interest rate, which is already in the negative zone. But Turkey is an extraordinary case. It has reduced its interest rates from 19 per cent six months ago to 15 per cent now. Turkey's supreme leader Recep Tayyip Erdogan seems to be driving the monetary policy in reverse gear, by cutting down interest rates drastically even though inflation has gone up substantially and Turkish Lira has been falling precipitously.
Other central banks (not in the above list) that raised interest rates are South Korea, South Africa, Poland, Hungary, Singapore, Pakistan and Mexico.
Interestingly, there were only three nations--namely, Germany, the Netherlands and Switzerland (Table 2 above)--where the 10-year benchmark bond yields were negative in May2021. But as of today, there are five countries--namely, Germany, the Netherlands, Switzerland, Finland and Denmark (Table 1 above)--where bond yields are negative.
Though global bond yields have not changed in the past six months, they went up considerably during the first quarter of 2021 (that is, Jan-Mar 2021). The changes are captured in Table 3 below:
It would be interesting to see how inflation will move in the next two quarters given the ultra loose monetary policies of major central banks, rising inflation worldwide and the challenges posed by the spread of new Corona Virus Omicron variant.
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P.S.: On 16Dec2021, Bank of England raised its policy interest rate to 0.25 per cent from a record low of 0.1 per cent. Mexico central bank, Bank of Mexico, on 16Dec2021 raised its benchmark interest rate from 5.0 per cent to 5.5 per cent.
Data as on 31Dec2021 (image added on 15Jan2022) >
Tables with data of Oct2020, Jan2021 and Apr2021 >
References:
My tweet thread dated 22May2021 on global bond yields and interest rates
My tweet thread dated 03Apr2021
TE global bond yields
TE global interest rates
Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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Twitter @vrk100
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