Are investors catching on that bond yields are actually bond losses?
''Investors hunt strategies in era of 'repression.'
'Financial repression' is here. And it is causing a headache for investors.
It may be little more than a buzz phrase in the markets but a growing number of strategists believe it accurately encapsulates how sovereign debt markets are being distorted by central bank and government policies that keep interest rates at historic lows.
Real bond yields, those adjusted for inflation, are at their lowest since the 1970s in the US and UK. And if the effect of central bank action is to prevent market mechanisms from responding to inflation, an element of the repression, then this poses big questions for investors' asset allocation strategies.
Andreas Utermann, chief investment officer at Allianz Global Investors, is unequivocal: 'We are clearly in a phase of financial repression. The central banks are clear about it: they are manipulating the capital markets,' he says. 'It will mean continual uncertainty.'
For banks, the big worry is that they become the captive buyers of sovereign debt. Indeed, the evidence from Spain and Italy after the European Central Bank's provision of cheap loans in December and February suggests that is already the case. Much of the billions of euros in cheap ECB money was used to buy eurozone government debt, leading to a fall in bond yields.
At the same time, the search for haven assets, combined with 'quantitative easing' in the US and UK, means that yields are well below inflation rates in the government bond markets of America and Britain, as well as Germany.''