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Worldwide government bond markets are slowing creating more demand

November 13, 2012 by · Leave a Comment 

Central banks all over the world are buying government bonds in order to improve economic conditions especially job growth.  Most of the activity concentrated on troubled European countries including Ireland, Greece, Portugal and Italy.  Portugal’s bonds were the best performer while Japan coming in as the worst due to its high sovereign debt load.

All throughout the world, government bonds outperformed the stocks and commodities returning an average of 31 percent.  Worldwide stock indexes show a loss of 4.2 percent.  According to the Standard & Poor’s GSCI Total Return Index, raw materials lost 21 percent during the same period.

Why investors are interested in government bonds?  Even with an average bond yield of 1.44 percent, many consider inflation is non-existing and bonds provide the safety.  In the U.S. the average inflation for last 20 years is 1.9 percent.  Another reason is central banks all over the world are buying government bonds in order to promote growth while keeping the borrowing cost down.  Additionally, government spending throughout the world is slowing making fewer bonds available in the market.  The $23.6 trillion worldwide bond market is the smallest since 2005.  This shortage creates more demand for government bonds.