The amount of negative-yielding bonds globally have jumped 47% to more than $12 trillion this year as signs that the Federal Reserve and the European Central Bank will ease spurred a bond rally.
INVESTORS will take a fresh look at U.S. government bond yields this week, after a tame inflation report and concerns about trade frictions helped push the yield on the benchmark 10-year Treasury note to a fifth consecutive weekly decline.
Yet even as jittery global markets spur demand for the relative safety of government debt, investors see the potential for yields to reverse course yet again. Speculative bets against the 10-year note recently hit a record, highlighting the potential for a shift that many worry could spur a new wave of volatility.
While the 10-year yield has stalled, the yield on the two-year note, which typically moves in line with expectations for monetary policy, has climbed. That is a sign of a narrowing dispersion between shorter- and longer-term rates, known as a flattening yield curve.
Many view a flattening curve as a sign of economic slowdown, even though few see a recession on the horizon, leaving analysts debating the signal’s meaning. Investors may get more clarity from the week’s corporate earnings reports.
Steady economic growth has left some investors doubting that recent gains for longer-term bonds can hold. Speculators have piled into near-record bets against 10-year Treasurys in the futures market.
Bonds will also be key when Goldman Sachs Group Inc. and Morgan Stanley report earnings this week. After JPMorgan Chase & Co.’s results got a boost from a trading pickup in late June, investors will be looking to see if Goldman, most reliant on fixed-income trading among big U.S. banks, gets the same bump.
Another beneficiary of trade tensions has been large, fast-growing stocks like Netflix , which is expected to report another quarter of robust subscriber gains when it posts second-quarter results on Monday. Most of the company’s growth has come from additions in international customers as its home market matures. - WSJ
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