How low can Bonds go?
“At the start of 2015, the yield on Germany’s 10-year bonds was 0.54%, which probably did not look very enticing to investors. Now, however, the yield is just 0.1% and seems to be heading inexorably for zero. Already the average yield on all German debt is negative. A recent survey found that a net 84% of global fund managers thought bonds were overvalued.
How far can this go? That is the dilemma. In the long run, such a yield looks crazy; in the short run, not so much. The European Central Bank is buying bonds to the tune of €60 billion ($64 billion) a month. Betting against a purchaser with an unlimited credit card is like standing in front of a train. Nor does it matter whether or not you believe the evidence that the euro-area economy is recovering (something that would normally cause bond yields to rise). ‘In this monetary policy environment, short-term data don’t matter’ says Salman Ahmed of Lombard Odier, a fund manager.”