World Government Bond Forecasts: Germany

Calm after the stormThe recent drop in bond prices has been reminiscent of 1994 when investors were caught off-guard by a year-long bear market. Although there are parallels in valuations and investor structure, inflation rates and money market rates are much lower than two years ago and there is still scope for Fed easing, while prior to the 1994 bond crash the Fed had signalled rising interest rates.

The yield curve, which in 1994 had been inverted up to about 3 years, is very steep, and investors generally are less exposed than in 1994.