| |
| |
 |
| |
|
| |
|
| |
|
NEW YORK - The recent slide in US Treasury bond prices is highlighting concerns that the low-inflation environment resulting from a globalized economy may be ending, analysts say.
Concerns are also mounting that foreign purchasers could be losing their appetites for American government debt.
The decline in US bond prices has sent 10-year US Treasury yields, which move in an opposite direction to prices, to their highest peaks in over five years this week.
The 10-year bond yield surged above five percent for the first time since early 2002 and rose as high as 5.32 percent this week, reflecting a sharp drop in the value of the obligations.
"The bond market has suffered a meltdown because of fear. Fear of inflation. Fear of global increases in rates," Kevin Giddis, a managing director at Morgan Keegan & Company, told investors in a note.
The bond market trend suggests borrowing costs are headed higher, which could affect American home owners with mortgages, the boom in private equity buyouts using borrowed cash and virtually any other lending.
Bond yields reflect the financial market's outlook for interest rates and inflation, and many analysts believe the global economy is sailing into a higher interest rate and inflationary period.
Some analysts say the so-called bull market in bonds, which began around 1981 and was fuelled by declining inflation worldwide, may be ending.
Bill Gross, founder and manager of bond investment firm PIMCO, said he sees higher global inflation and growth, a combination that is "not necessarily bond-friendly."
"For a bond manager, the secular environment we are describing suggests an end of the era" of strong bond returns for the past 25 years.
Another factor cited for tumbling bond prices by Marc Pado, an analyst at Cantor Fitzgerald, is "the lack of foreign buying interest."
Some market-watchers believe that Asian powerhouse China is cutting back on its US bond purchases, which are traditionally considered a safe haven investment, as it seeks to diversify its vast financial holdings.
"China's recent decision to invest in a major private equity player could be the tip of the iceberg, as its foreign exchange reserves stand at a mammoth 1.2 trillion dollars and counting," said Sal Guatieri, a senior economist at BMO Capital Markets.
Guatieri said it appears as if other foreign governments are also moving to diversify their holdings.
The Blackstone Group, a US private equity giant, said the Chinese government had signed on as an multibillion dollar investor as it plans to launch a partial initial public offering within weeks.
The Chinese government has been a voracious buyer of US bonds, but it might now be seeking alternate investments in a move that could apply further downward pressure on bond prices.
For many analysts the shift in the bond market reflects a changing perception that global interest rates could be headed higher as inflationary pressures, including rising oil prices, increase.
The Fed has not raised US rates for a year, but Fed policymakers say they are keeping a laser-like focus on potential inflation pressures, including surging gasoline prices.
The European Central Bank, the Bank of England and the New Zealand central bank have, however, hiked rates in recent months amid fears of mounting inflation.
Such moves by overseas banks affect US and even international financial markets in the globally linked economy. - AFP/ir
|
