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The International Monetary Fund says global bond markets remain orderly despite rising yields across advanced and emerging economies. Higher term premia are being driven by persistent inflation, increased government borrowing needs and worsening fiscal balances. Gold has remained resilient above $4,000 an ounce despite higher U.S. Treasury yields, tighter monetary policy and a stronger U.S. dollar, highlighting its continued role as a monetary asset.
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- If rising bond yields around the world aren’t really a problem, why is the International Monetary Fund talking about them? The IMF said Thursday that global bond markets continue to function in an “orderly manner,” but this reassurance comes as yields have risen across advanced and emerging economies.
According to Reuters, U.S. 10-year bond yields saw their biggest quarterly rise this century during the third quarter.doesn’t pay interest, so when investors can earn more by holding government debt, the opportunity cost of owning bullion rises. But that relationship becomes more complicated when yields are rising because investors are demanding greater compensation to hold government debt.
Term premia have risen across major developed markets, including the U.K., France and Germany, as investors confront persistent inflation, growing government borrowing requirements and deteriorating fiscal balances. In other words, government bond markets may still be functioning perfectly well, but investors are demanding a higher price for the risks they are taking. Gold has already demonstrated remarkable resilience in an environment that, according to the traditional playbook, should have crushed demand.
U.S. Treasury yields have risen to levels not seen since 2002, monetary policy has tightened and the U.S. dollar has strengthened. Yet gold remains above $4,000 an ounce. Real yields at 2.24% present a genuine headwind for gold. But that doesn’t diminish the precious metal’s role as a monetary asset.
Gold has no sovereign issuer, no fiscal deficit and no refinancing requirements. It doesn’t depend on a government continually issuing larger amounts of debt to meet its obligations. The IMF explicitly says markets remain orderly. But analysts have noted that orderly doesn’t necessarily mean risk-free.
The important question is whether rising global yields represent attractive competition for gold or a growing risk premium attached to sovereign debt. If it is increasingly the latter, higher yields may not be as bearish for gold as conventional wisdom suggests.
It may only need investors to start questioning how reliable that market will remain as governments issue ever more debt at increasingly expensive interest rates.has a diploma in journalism from Lethbridge College and has more than a decade of reporting experience working for news organizations throughout Canada. His experiences include covering territorial and federal politics in Nunavut, Canada. He has worked exclusively within the financial sector since 2007, when he started with the Canadian Economic Press.
Neils can be contacted at: 1 866 925 4826 ext. 1526 nchristensen at kitco.com @KitcoNewsNOWThe views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only.
It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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