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World Government Bond Forecasts: Introduction

The shake-out in world bond prices that started at the end of January this year has masked the widely differing performances from the main government bond markets. While the brunt of the selling has been borne by the US and some other dollar block countries – notably Australia and New Zealand ­– a number of European bond markets have recovered all or most of their initial falls.

World Government Bond Forecasts: Spain   
World Government Bond Forecasts: Switzerland    
World Government Bond Forecasts: Austria   
World Government Bond Forecasts: Canada 
World Government Bond Forecasts: Denmark   
World Government Bond Forecasts: The Ecu  
World Government Bond Forecasts: Germany
World Government Bond Forecasts: Italy 
World Government Bond Forecasts: Greece  
World Government Bond Forecasts: The Netherlands

The message is that some decoupling of European and US interest rates has been in progress, along with a convergence of yields within Europe itself.

Given its timing, the sudden break in the market in January had echoes of the early-1994 sell-off, prompting fears that history was about to repeat itself. But world bond markets were nowhere near as overbought as they were in early 1994. Then the average underweighted yield to maturity of the 21 bond markets included in Zurich Investment Management's database was barely 5.7%.

This January it was a full percentage point higher, yet inflation expectations were significantly lower than they had been two years earlier. The technical backdrop was also markedly different. The magnitude of the price collapse in early 1994 owed much to the role played by hedge funds and other highly leveraged investors.

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