LONDON Oct 4 The only way for bond yields is
Not according to Steven Major, global head of rates strategy
at HSBC, who correctly called the steep fall in global bond
yields in recent years and who on Tuesday predicted they will
remain at current historical lows for another five years.
Benchmark government borrowing costs this year have fallen
to their lowest levels ever in Britain, Japan and the euro zone
- below zero in the latter two regions - and are close to record
lows in the United States.
Waves of central bank bond purchases and interest rate cuts
in the face of sagging growth and persistently low inflation in
a climate of rising political uncertainty have given added
impetus to the 30-year decline in global yields.
Most analysts reckon the bond market's 30-year bull run, the
world's longest, is over and that yields have nowhere else to go
but up. Deutsche Bank, for example, said that rising interest
rates, yields and inflation will be a feature of the next 35
But Major at HSBC argues that the huge overhang of global
debt depresses growth and therefore keeps real natural interest
rates low. Central bank balance sheets will remain bloated, and
quantitative easing stimulus will continue, he argues.
"This bull market is not over. Just because yields have
fallen, they do not have to rise," Major said in a note to
clients on Tuesday. "In 2021, yields will be no higher than they
He expects the 10-year U.S. Treasury yield to end next year
at 1.35 percent compared with 1.62 percent
currently, Germany's to be -0.20 percent compared
with -0.10 percent now and Japan's to be a downwardly revised
-0.20 percent, compared with -0.06 percent
Inflation is "non-existent" in large parts of the developed
world, debt levels have continued to rise across developed and
emerging markets, and the post-crisis policies of the last
decade have failed to lift growth, Major argues.
There would have to be a "major game-changing event" for
bond yields to rise significantly, he said. That may include a
rise of populism triggering a fundamental shift in government
policy somewhere, or a significant overhaul in central bank
Economic data might be much stronger than expected, but on
the other hand "a move towards recession would both validate low
yields and argue that they should remain low."
(Reporting by Jamie McGeever and Dhara Ranasinghe; Editing by