Published on: July 26, 2019

As the world melts; as train tracks buckle under the extreme heat, my colleagues and I have struggled through the Tenko-like conditions to bring you our latest blog.  Welcome to this week’s News, Views and Truths.

Scorchio!  It has certainly been hot this week and as I write this latest edition, the mercury is steadily rising.  A bit like markets… (see what I did there?)

In particular, Greek debt.  Not the usual topic of conversation I grant you, but this week’s news has been about the fact that the yield on Greek 10-year bonds has fallen under 2% for the first time ever.  “Wow”, I hear you gasp. Also, “Why don’t you get a life, Andrew?”  That’s a different topic, ladies and gentlemen.

So what’s the big deal?  Well, the main point is that the yield on Greek debt is now lower than the US debt, meaning the market is viewing the Greek economy as a safer bet than the US economy. And that is pure fantasy.

However, to give it even further backdrop, in March 2012, the yield on the same debt was 48%.  Unprecedented?  I’d say so.

And the reason for this move?  Central Banks.  Everything is to do with Central Banks.  Investors are now moving into any old European assets on the view that the European Central Banks are ready to commence more stimulus to revive the regions anaemic growth.

Yet, even at sub-2% yield, Greek debt is still viewed as attractive for those investors desperate for yield in this low-return world.  As today’s chart from the FT below shows, negative returns on core eurozone debt have pushed bond buyers to look at riskier sovereign debt from countries like Italy and Greece. Last Tuesday, Greece sold 2.5 billion euros of seven-year notes, attracting more than four times the bids needed to fulfil the sale.

Yields across bond markets have fallen sharply in recent weeks, indicating that investors are wary of an impending recession.  This is one of the reasons why clients of Three Counties have been receiving portfolio switch recommendation letters over the past few weeks to action this situation.

And if there are continued concerns about global growth slowdowns, although current yields are at historic lows, there is no reason for these to fall further.  With Central Banks on the cusp of fresh stimulus and cutting rates, as well as a record $3.3 trillion sitting in money market funds, there is no reason to believe that investors are done buying fixed income.  That cash could easily find its way into the bond market.

And as usual, we will keep an eagle eye on things.

Moving on, holiday snaps.  This week’s picture is from Three Counties’ own Wilma Watson, taken in the Troodos Mountain, Cyprus.  Now that is what I call a blue sky!

And to sign off, our playlist.  Keep cool, stay safe and I shall see you all next week!

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