COMMENT: Bonds break records, is that the right thing to do?

Bond yields are reaching historic lows. In practice, this means that investors buy bonds as they rise and their price rises, while their yield falls. This is the case, or what this breeding might suggest, Investin analyst Partners Ondej Slezek describes in his comment.

Government bonds with quality investment ratings, such as Germany and the United States, are generally considered a risk-free asset. It could be assumed that investors move from risky assets, e.g. action, to a safe way and the so-called flight-to-safety / quality effect is applied.


Development of German government bond yield (10 years) photo:

This orthodox approach would be quite logical, or in the world economy there are fears of a recession, to which some central banks responded with pigeons and the first dreams of years of rates. The condition of the economies will not be improved even by the growing protectionism in the international trade with the main acts on the route anghai-Washington.

Prominent year as a long term

However, the hunter does not have to be economically distant to answer the question of whether the years in question are in line with basic economic principles. In layman’s terms, I take my pension and get paid for it. Does that sound like a dream?

At present, it is, unfortunately, a reality from which I can become non-existent for the entire financial market. The first signs u can be observed e.g. in the Czech banking market, where Jyske Bank A / S announced that it intended to provide mortgages for 10 years with a year of -0.5%.

But it can go dl. Nordea m in the mind to provide mortgages with a year -0.5% even for 30 years! From a historical point of view, this is really unparalleled. If the declines in yields continue or at least remain in negative territory and for a year, rates will be supported by central banks, this day may not fully drown in other countries. So where to look for the pins of this abnormal phenomenon?

Correlation between v

The correlation between the development of the Czech bond (5 years) and the average year of the mortgage rate sfixac 1-5 years is 0.88, which means a linear difference. | photo: ARAD, NB /

Pli many pensions in the economy

The first culprit could be found in the financial crisis and in its impact. In order to halt the recession and start the economic growth and keep inflation at the same time, the central banks reduced the rates for years and not to 0%. When even this stimulus did not have a sufficient effect, they pumped huge amounts of pensions into the economies through non-standard Fed and ECB programs through quantitative pension relief or NB through monetary intervention.

For a short time, these acts could crawl on the walls, as they really managed to raise inflation and growth. But as it is, when a coin has two sides. It seems that these funds have begun to spit on the capital, especially the stock market, which means that the prices of the action to go recently have been breaking one record after another. As it seems, the inefficiency of the bond market, resp. hypotench vr.

The road to hell is good with the mind

Dal the reason could be gas regulation. Many pension and bond funds cannot afford to spend most of their pensions on foreign funds at the time of disputed deposits, as the regulatory conditions allow them to have only a certain percentage of assets deposited in this way. In practice, asset managers are often forced to buy such a bond, and the situation is in any way.

The threat is that the performance of conservative pension funds will again pay around 0% and the only reasonable way in the long run will remain the choice of a dynamic strategy. So, as it seems, full caution is not always completely fulfilled.

On the other hand, it is possible that the current situation on the bond markets is not standard and should not be the standard, but unfortunately there is nothing to suggest that it should change dramatically.