BANGALORE (Reuters) – Real yields on major sovereign bonds are deeply negative and expectations of positive near-term yields have faded as aggressive monetary easing and asset purchase programs continue, a Reuters poll showed.
For more than a decade, leading central banks have used aggressive monetary policy instruments in an attempt to reduce the cost of long-term borrowing to maintain credit flow in order to return their economies to higher growth and inflation rates.
The real, or inflation-adjusted, yield on 10-year US Treasuries fell below zero this year amid the coronavirus pandemic, joining Japanese, German and British government bonds that have generated negative returns for much of the past decade.
A September 17-24 poll of over 100 fixed income strategists showed that they still expect yields on key government debt to rise by about 20-30 basis points per year.
But expectations for real yields in the coming year on these inflation-adjusted bonds were still negative, despite growing government borrowing.
More than three-quarters of strategists, or 57 out of 75, believe sovereign bonds are most likely to remain near current levels or within a range – near this year's lows and well below pre-COVID-19 levels.
This largely reflects low inflation expectations and the commitment of major central banks to keep base rates close to zero and in some cases even lower, as well as bond buying programs that are expected to be extended.
“We continue to see declines in bond yields, which are being constrained by central bank policy to keep rates low, despite concerns over debt issuance, which are overshadowed by continued strong demand,” said Elvin de Groot of Rabobank.
The yield on 10-year US Treasuries is projected to rise by more than 25 basis points to 0.93% per annum, about half the expected average inflation rate, implying negative real yields in the coming year.
About 80% of strategists, or 35 out of 45, said the Fed's promise that interest rates would be close to zero for several years would keep yields on major government bonds “low.” Only about 20% of respondents said that this “will not stop them from raising.”
The widely shared assumption that low interest rates will ultimately fuel price pressures has not materialized, lending weight to the view that most large central banks that have fallen short of their inflation targets for several years will struggle to meet their inflation targets. them and for many years to come.
“As an economic society, we need to humbly understand our ability to comprehend the path of inflation,” said Guy Lebas of Janney Montgomery Scott.
(Rahul Karunakar and Hari Kishan. Translated by Olga Vishnevskaya. Editor Anna Kozlova)