The WSJ reports,"global bond rates dropped to their lowest levels of the year Wednesday, as central bankers signaled their determination to jolt the world's largest economies out of their malaise.
Investors piled into U.S., German and British government bonds—used to price everything from mortgages to car loans—driving down their yields. The yield on the 10-year U.S. Treasury dropped to as low as 2.523%, its lowest level in more than six months. In Germany, 10-year bund yields fell to their lowest point in a year.
The persistently sluggish economies in Europe and the U.S. have confounded central bankers and surprised investors, many of whom anticipated that this year would see relatively strong economic growth after years of monetary stimulus. In the U.S., despite rock-bottom interest rates, housing activity remains relatively depressed, companies have yet to pick up hiring and inflation has remained worryingly low.
"The global economy hasn't fired up despite all the heavy monetary stimulus,'' said Mary Ann Hurley, vice president of trading at D.A. Davidson & Co. in Seattle.
The prospect that central banks will continue to inject money into the world's bond markets, as well as enact policies to keep interest rates low, has acted as a green light for the world's bond buyers".
Bank of England Gov. Mark Carney on Wednesday said the U.K. central bank is in no rush to raise interest rates even though some U.K. economic data on manufacturing and employment have been stronger lately.
Mr. Carney's comments came a day after The Wall Street Journal reported that Germany's central bank, which has resisted the idea of further stimulus, is now willing to back an array of measures by the European Central Bank to fight stubbornly low inflation. Ten-year U.K. government bonds fell to their lowest yields since the end of October.
U.S. Federal Reserve Chairwoman Janet Yellen said last week that the U.S. central bank would continue to keep interest rates near zero for a considerable period.
Central banks have spent trillions of dollars buttressing financial markets and the global economy since the 2008 financial crisis. While the Fed has begun tapering its monetary stimulus, it is still buying $45 billion of Treasurys and mortgage bonds each month.
Investors came into this year anticipating rates would move higher as economies picked up steam and as the Fed pulled back stimulus efforts.
The yield on the 10-year U.S. Treasury was about 3% at the beginning of the year, and Wall Street strategists and economists were predicting rates would rise steadily beyond that.
"Bond bears have eggs on their faces this year," said Gary Pollack, who helps oversee $12 billion assets as head of fixed-income trading in New York at Deutsche Bank AG's private wealth management unit.
This year through Tuesday, U.S. Treasury bonds have handed investors a total return of 2.18%, according to data from Barclays PLC. The S&P 500 has returned 3.4% in the same period, while the Dow Jones Industrial Average has returned 1.7%, according to FactSet and including price gains and dividend payments.
German government bonds have delivered investors a return of 3.5% so far this year and U.K. government bonds 3.17%. Total return includes price appreciation and interest payments and is calculated in local-currency terms.
By the end of the day Wednesday, the 10-year U.S. Treasury note was 21/32 higher in price, yielding 2.544%. In Europe, the yield on the 10-year German government bond fell to 1.37%, while the yield on the 10-year U.K. government bond dropped to 2.583%.
Analysts say "Everybody at the start of the year bet on higher yields,"
