The size of the global government bond market surged by $10 trillion in the space of two years to reach about $50 trillion. Those outstanding borrowings are at least one gorilla in the room as investors gear up for a year in which yields are expected to climb as central banks step back and economies extend their recovery.
At the very least the weight of all that debt acts to enhance the role that “price-insensitive” investors play in repressing yields.
The savings glut is a big part of that pool. Across Asia and beyond there’s a generation or two who grew wealthy from the postwar booms and are now more concerned about preserving capital than about adding to it.
Their presence helps to explain the waves of buying that contributed to capping yields at about 1.7% for 10-year Treasuries this year, as does demand from pension funds and insurers — remember the U.S. defined-benefit funds who switched into bonds.
Then there are the essentially forced investments from banks that have to hold sovereign securities to meet rules introduced after the collapse of Lehman Brothers.
And we have the trillions of dollars that central banks hold, both via QE programs and in their foreign-exchange reserves.
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