Government bonds decline on global growth concerns
This week’s chart shows how a worsening outlook on global growth is impacting government bond yields and income-seeking investors.
February 22, 2019 | 2 minute read
While the U.S. equity market rose dramatically during the first six weeks of 2019, U.S. Treasury yields largely moved in the opposite direction as investors became increasingly concerned about signs of a global economic slowdown.
Global trade disputes, the threat of a disorderly Brexit and signs of a slowdown in eurozone and Asian economies contributed to lower sovereign bond yields across many of the industrialized economies. For example, Germany’s 10-year government bond yield declined by over 30 bps since the beginning of Q4 2018 as Europe’s largest economy narrowly avoided slipping into recession.1,2
The worsening growth outlook prompted investors and U.S. central bank officials alike to push back expectations for the next rate increase. Minutes from January’s FOMC meeting released this week show officials supported putting interest rate increases on hold until they could better assess the rising risks to U.S. economic growth, which include the possibility of “a sharper-than-expected slowdown in global economic growth.”3
After the Fed signaled in January that it was done raising interest rates for the time being, the yield on the U.S. 10-year Treasury note slipped below 2.7% and has largely remained there through February.1 Helping to pull U.S. Treasury yields lower, yields on the 10-year German bond and 10-year United Kingdom bond currently sit at 0.14% and 1.1%, respectively – making U.S. bonds look relatively rich in comparison.1
With global bond yields continuing to trade near historic lows and the outlook for economic growth uncertain, investors may need to look beyond traditional investments in their search for alternative sources of income and growth.
Private credit has increasingly become the preferred source of financing for PE sponsors, with direct lending volume jumping 60% over last year’s level.
