Goldman Sachs: Hard to predict how long bonds selloff may last following 'unprecedented' market volatility
Goldman Sachs International's Vice Chairman Michael Sherwood told CNBC on Monday that it is too early to predict how long will the selloff in governmet bonds last in the wake of "unprecedented" market volatility.
Last week European and U.S. bond yields surged to
their highest levels this year - sending their prices tumbling - amid
some upbeat signs on the economic front and a perception that
inflation is rising faster than anticipated a few months ago.
The yield on the 10-year German Bund,
the benchmark in Europe, jumped more than 40 basis points last week,
climbing to just shy of 1 percent. The yield, which moves in the
opposite direction to the price, was at 0.885 percent on Monday and well
above a record low of 0.05 percent set in April.
Meanwhile, the yield on the 10-year U.S. Treasury climbed to an 8-month peak at about 2.40 percent after a stronger-than-expected U.S. non-farm payrolls report on Friday renewed talk of the Federal Reserve lifting interest rates sooner rather than later.
"We went from a period where rates were a one-way
bet down when the ECB QE
program was announced; we had a situation where 30-40 percent of
government bonds had negative yields. That is starting to reverse itself
a little bit, but it's too early to tell," Sherwood told CNBC.
"(ECB President Mario) Draghi has said they are committed to the QE
program - it's very early days in a situation that is unprecedented,"
he added.
"I think we will look back on this period and say: 'Wow, were
rates really that low?' But it may take a couple of years."
The scaling back of the ECB's QE program over time would be a "good sign", he added.
Europe's economy is expanding, and some countries released much better data. "I hope they withdraw so we get back to a more normal savings and investment pattern," Sherwood said.
Low-yielding bonds have triggered worries
about returns for institutional investors, such as European pension
funds.
"The pension time bomb in Europe is one of the biggest challenges that faces us," Sherwood agreed. "Pension and insurance companies have to be more creative. They have to think about new ways to invest in the bond market."
