Term premium is too low. This is one of the best predictors for returns on bonds especially combined with momentum (1 year, 3 year).Negative returns of 10 year Treasuries for rest of 2015 should be base scenario. -6% if you believe in momentum.
And for Germany? At the moment the beta of German 10 year rates with the US is a bit below 0.5. So a bit less than half of the rise of 10 year yields in the US will be translated into higher German bond yields.
Several other warnings for the bond market:
- · The rise of yields in japan because of unease with QE
- · The sudden huge rise of stories about deflation
- · Economic growth will surprise to the upside after 4 years of continuing downward revisions of growth expectations. With a lag we will see the positive influence of lower oil prices. The good news for economic growth still has to enter the numbers in the US. People are not patient enough. The FED knows and will not be patient.
- · The return of securitisation in the US. This should trigger higher real rates.
Momentum wijst op -6% voor de rest van het jaar, net als in 2004,1009,2013.
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