Bond prices are down and yields up--and the trend looks like it could go on for a while

12/10/2010 3:11 pm EST


Jim Jubak

Founder and Editor,

It’s not just happening to U.S. Treasuries. Bond prices are plunging and yields soaring for developed economy bonds across the globe. The benchmark 10-year yields on government debt in the United States, Germany, the United Kingdom and Japan are all up by 20 to 25% in the last month.

That would be huge volatility even for investors in stocks. For bond buyers it’s scary enough to send them screaming out the door—which, of course, just increases the volatility.

On December 8, yields on 10-year U.S. Treasuries hit a six-month high of 3.33%. That’s a full percentage point higher than the October low. And it’s a shocking 0.76 percentage points above the yield just a month ago on November 8. (Treasury prices rallied on December 9 but they're down again today.)

In that same one-month period yields on German 10-year bonds are up 0.62 percentage points, yields on 10-year U.K. bonds are up 0.53 percentage points, and yields on Japanese 10-year bonds are up 0.29 percentage points.

The reasons for the move up in yields—and down on prices–on U.S. and German government bonds are pretty clear. For U.S. bonds the proposal from the Obama White House and Congressional Republicans to add $1 trillion in debt over the next two years to the U.S. balance sheet by extending the Bush tax cuts has just put a capstone to the feeling that the U.S. government doesn’t have an inkling of a plan for dealing with the U.S. deficit. For German bonds the worry is that Germany is going to get stuck bailing out its neighbors no matter how much protesting it does now.

How much further bond prices and yields go in the current direction will depend on when the bond market thinks it sees some progress on either of these fronts.

Could be a while.
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