It was a day of record low yields in the global bond market on Tuesday. In the U.S., the yield on the 10-year Treasury bond fell below 2 percent, while in Europe record lows were set in Austria, Belgium, Finland, France and the Netherlands. Germany and Japan both have 10-year bond yields under 0.5 percent.
But what do these record lows tell us about the real economy?
Former U.S. Treasury Secretary Larry Summers says that the low yields are surprising, especially during a recovery. Steven Major, head of fixed-income research at HSBC and one of few analysts to predict that 10-year U.S. Treasury bills would remain at 2.1 percent at the end of last year, says it may seem like a contradiction to those watching short-term indicators like quarterly gross domestic product growth, because bonds pay off over many years. Steven Englander, global head of G-10 foreign exchange strategy at Citigroup, agrees that the bond market is hinting at something deeper and more long-term.
Summers identifies the deeper trend as one of “secular stagnation”: High savings and low investment. It’s not a cause for panic, but he says it is a cause for concern.
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