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Global bond markets in a sweet spot

June 2016

June 11, 2016 | 13:55 | Dubai

As global investors continue to assess the political and macro backdrop, global bond markets have remained in a sweet spot. Global equities and high-yield bonds have both risen 1.5-2% over the past week, EM currencies are up nearly 3% and oil prices +5%.  At the same time, 10yr U.S. Treasury yields are down 10-15bp, while 10yr Bund yields slipped to a record low of just 0.023%. Fed Chair Yellen’s June 6 speech — her last ahead of this week’s FOMC meeting — did nothing to counter the impression that U.S. rates could be on hold until much later in the year, allowing the hunt for yield to carry on (a particular boost for EM bonds), according to a report by the Institute of International Finance (IIF).

In Europe, the ECB’s launch of its corporate bond-buying program has pushed average yields on investment-grade euro corporate bonds to a near-record low of just 0.94%: an estimated 15% of outstanding euro corporate debt now trades at negative yields (along with almost 45% of euro sovereign debt), IIF said in its Weekly Insight. The “rising tide” of global bond markets has also given a lift to the green bond market with issuance of over $20 billion this year (over $8 billion from China alone) surpassing last year’s pace and still failing to keep up with growing demand.

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