Meanwhile, the ECB is expected to introduce additional unconventional measures to drive rates in the opposite direction, even if that means putting further downward pressure on some government bonds that are already trading at negative
nominal yields.
We focus on forecasts of the quarterly average level of 7 different interest rates: the federal funds rate and the
nominal yields of Treasury securities at 6 different maturities between 3 months and 10 years.
Adrian Hartshorn, Senior Partner in Mercer s Financial Strategy Group said, Although the improvement in
nominal yields is welcome, any decision to lock into historically low yields by hedging at current levels requires careful consideration, and should be balanced against other hedging opportunities.
It discusses why longterm Japanese government bonds'
nominal yields have stayed very low in spite of elevated government debt ratios and chronic fiscal deficits.
The combination of Fed tapering, a spike in
nominal yields and a stronger dollar has put gold under some considerable pressure.
On top of providing relatively high
nominal yields, attractive risk-adjusted returns, and a chance to pursue a differentiated source of alpha, allocating a portion of a credit portfolio to pursue these more esoteric opportunities can help to reduce duration risk - a very appealing proposition with interest rates at all-time lows.
However, record low
nominal yields have removed much of this relative funding advantage.
If risk appetite revives,
nominal yields that are so far below the plausible long-term growth rates of nominal GDP in the US, the UK and Germany will start to look unattractive.
If the forces in the world which are deflationary, that we've talked about in terms of debt busts, prevail and the Fed doesn't do the Quantitative Easing II promptly, we could actually see some reversion in this relationship and a reduction in
nominal yield, certainly given the sell-off in Treasuries that we've seen recently and the backup in
nominal yields.
Average
nominal yields are expected to remain stable in comparison to 2010.
The calming of the markets combined with the very attractive corporate bond
nominal yields have resulted in significant demand for high quality bonds," Austin said.
Their first step is to estimate yields on hypothetical real bonds that have the same liquidity as nominal Treasury securities, using a joint model of
nominal yields and inflation.
