With that, at 2.60% on the U.S. 10-year government bond yield (a global benchmark interest rate), is there an element of worst-case scenario for the global economy being priced in? I’d say with the U.S. economy growing at 3%, and stocks at these levels, even when the 10-year was at 3.25%, bonds were (to some degree) pricing the worst-case scenario.
So, why are bond yields as low as 2.60%? Smarter market participants? No. It’s intervention/manipulation. Sure, the Fed has put the brakes on its policy direction. The ECB has reversed course on policy! China is easing. But, most importantly, the Bank of Japan is still executing on an unlimited QE campaign.
The Bank of Japan’s yield targeting policy gives it the license to buy unlimited assets. They have been and will continue to buy U.S. government bonds, and they continue to be the anchor for global interest rates. And it’s safe to say, they are acting with plenty of coordination with the other major central banks in the world (namely, the Fed).
Bottom line: The interest rate picture is signaling one very clear action. The Bank of Japan is still engaging in full throttle QE.