From the AFR:
It’s been going on for almost 34 years now, but it’s coming to an end. And for a raft of investors who haven’t known anything else it’s all about to change.
The bull market in global government bonds that started in August 1982 is about to finish.
So says Peter Jolly, global head of research at National Australia Bank, who warns that bond holders, more in Europe but increasingly in Australia, are no longer being adequately compensated for the risks they are taking given the very low outlook for inflation.
Put simply, inflation is tipped to remain low for the next couple of years but Jolly argues just not quite as low as the bond market has got priced in right now.
“All up, yes, global growth, inflation, and bond yields are in a “new normal” and are likely to be much lower than history in the years ahead. Even so, I expect Australian Commonwealth government bond yields will be somewhat higher than present in the years ahead, ” he warns.
While many investors think of government bonds as conservative assets, they have produced much better returns than equities since 2009, thanks to falling interest rates and a drop in the inflation rate.
I can see a point at which global deflation at least bottoms out. When helicopter money arrives en masse and governments everything simultaneously take up the income redistribution battle and choke free trade then deglobalised labour will catch a bid.
But we aren’t there yet, most especially in Australia where interest rates remain far too high for the underlying economic reality.
More deflation ahead first, more bust, more violence, more painful deleveraging and more bond bids first.
