Robeco: Wie tief können Zinsen eigentlich sinken?

You know that something out of the ordinary is going on when clients no longer appear to be primarily concerned about the remaining up- or downside for stock markets, but rather on how much lower yield in the 10-year government bond markets can go. For sure, we have seen these concerns more often during this decade-long drop in bond yields, but at those times yields were still at levels that were quite lofty, at least if we look back at it with hindsight.

For example, just prior to the infamous bond market ‘crash’ of 1994, there was a lot of concern over whether bond yields had dropped below their equilibrium levels. Yields were trading at around 5½%, the lowest level in almost 30 years. Concerns turned out to be right, as the turn in the Fed’s policy pushed yields back up to levels as high as 8% in the year that followed. Today, that 5½%, the 4% low in 1998-99, the 3% during the crisis of 2009) and even the 2% low of 2013 all sound like excellent buying opportunities if we compare it to the 0.35% that you currently get when you invest in a 10-year German government bond. The expectation that the trend of ever-lower yields would finally be broken in 2014 once again turned out to be incorrect. Tapering or not, bond yields continued to trend lower, with especially European bonds moving in thus far uncharted territory. It was not just a European phenomenon though, as yields across the globe trended lower. Yields in almost all industrialized countries reached all-time lows, with even Japanese 10-year yields touching an unprecedented level of 0.3% at the end of the year. The only country bucking the trend with respect to all-time lows has been the US, which in itself is not surprising given the solid growth seen in 2014. But even there, yields have declined, defying strong growth as well as words of warning by the Fed about an upcoming change in monetary policy.

Which brings us back to the millioneuro question of how much lower can bond yields – and specifically 10-year bond yields- drop? With history as our guide, up until the middle of 2014 the answer would have been around 0.5%, as that appeared to be the natural low even the Japanese 10-year bond yield could not structurally break. Given the fact that Japan is a textbook example of a country with structural deflation, caught in a liquidity trap and with a central bank pushing through a massive QE program, this 0.5% felt like a good worst-case outcome. This low was reached in 2003, revisited in 2013, and appeared to again be the bottoming out level from which yields rebounded in 2014. 

Der vollständige Ausblick im pdf-Dokument