Special Feature
Investors have been desperately and blithely seeking the relative safety of bonds as the Great Financial Crisis and, more recently, the European debt crisis have cast their long shadows over global markets. In recent weeks we have seen yields on government bonds hit record lows, in some instances actually going negative — meaning that investors are paying for Governments to hold their money! Why are yields sinking this way and just why are investors willing to pay governments to take their money? The Great Financial Crisis that had it origins in the subprime loan issue in the US in 2008 quickly infected the real global economy and set in motion a train of events that has culminated in global interest rates falling to unprecedentedly low levels.
It seems hard to believe now, but key interest rates set by the Federal Reserve (FED), the Bank of England (BOE) and the European Central Bank (ECB) were at 5.25%, 5.00%, and 3.00% respectively on the eve of the global crisis at the end of 2006. Some people have begun to question whether rates will rise at all throughout the remainder of this decade as the heavily indebted global banks attempt to repair their balance sheets — so weighed down by sour investments and governments impose deflation on their populations as they attempt to pay down their own debt burdens.
BOE
60 | www.financial-spread-betting.com | September 2012