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27 Mar 2015
NZ, Canadian & Norwegian bonds highly vulnerable to revival in global reflation - DB
FXStreet (Barcelona) - The Team at Deutsche Bank, uses different methodologies incorporating nominal growth forecasts as well as term-affine modelling to give the outlook on bond risk premia across the world’s fixed income markets.
Key Quotes
“The global fixed income rally over the last year has not only reversed the normalization to risk premia seen in 2013 but has led to even greater extremes: nearly all DM term premia are negative.”
“Despite these extremes, there remain significant differences in valuations. Australia, Germany and the Scandies are the world’s most expensive bond markets measured by levels of term premia.”
“European peripheral bonds are the cheapest, currently the only DM bond markets with positive risk premia.”
“Gilts, US treasuries and New Zealand also seem cheap on a relative basis.”
“Our comparative approach suggests that even if individual bond markets look expensive, relative valuations and global factors can have an important downward impact on global yields.”
“We find that global inflation dynamics and risk appetite have the biggest downward impact on Norwegian, Canadian and New Zealand bonds. This suggests that these markets would be the most vulnerable to a revival in global reflation.”
“We also compare bond valuations to equities and find that equities remain cheaper to bonds.”
Key Quotes
“The global fixed income rally over the last year has not only reversed the normalization to risk premia seen in 2013 but has led to even greater extremes: nearly all DM term premia are negative.”
“Despite these extremes, there remain significant differences in valuations. Australia, Germany and the Scandies are the world’s most expensive bond markets measured by levels of term premia.”
“European peripheral bonds are the cheapest, currently the only DM bond markets with positive risk premia.”
“Gilts, US treasuries and New Zealand also seem cheap on a relative basis.”
“Our comparative approach suggests that even if individual bond markets look expensive, relative valuations and global factors can have an important downward impact on global yields.”
“We find that global inflation dynamics and risk appetite have the biggest downward impact on Norwegian, Canadian and New Zealand bonds. This suggests that these markets would be the most vulnerable to a revival in global reflation.”
“We also compare bond valuations to equities and find that equities remain cheaper to bonds.”