Stefano Fugazzi (ABC Economics) – The following chart exhibits the changes in the 10-year government bond yields in the United Kingdom, United States and within the Eurozone (mean value across the single currency members). The reader will observe that there have been some marked fluctuations in yields in recent months, particularly in the euro area. This partially reflects shifting market sentiment about Greece during the breakdown and resumption of negotiations with its creditors in June and July, resulting in the widening of spreads between other euro-area periphery countries’ government bond yields and German yields in July. Those increases have subsequentely unwound. Chart 1
More generally, government yields in the UK, US and the Eurozone have marginally increased since the beginning of the year although they remain below levels seen in 2012, when the euro-area sovereign debt crisis intensified, and significantly lower than 2007, even before the burst of the subprime bubble in the US. The downward trend in yields is largely a consequence of the monetary policies undertaken by central banks, that is quantitative easing and asset purchase programmes, since the inception of the Great Crisis.
As previously documented in ABC Economipedia, a book which analyses the response of the financial markets to monetary easing, the injection of liquidity through asset purchase programmes not only have reduced government yields but have boosted equity market prices. Chart 2