Probably the biggest market surprise in 2014 has been the bond market rally.
Almost everyone predicted that interest rates would rise in the US and elsewhere, as the economy took off.
Instead, the yield on the 10-year bond is backdown to 2.51%.
In a piece up at the FT, Mohamed El-Erian gives three reasons why investors keep piling into bonds, and driving rates lower. They are: Failure of the economies of Europe and the US to really take off, signalling from the central banks that they will keep rates very low, and investors’ positioning. On that last point, basically, investors were almost uniformly positioned for bond prices to fall, so as that failed to happen, there’s been a big short-covering scramble.
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