by David Kotok
Diverse forces coalesce each minute to form the market pricing of a sovereign bond. American Treasury 10-year notes function as the world’s US dollar sovereign benchmark. The German 10-year (bund) benchmarks the euro, and the 10-year JGB represents Japan on this global scorecard. Right now the US note has the highest yield at about 1.9%, and the other two are around zero due to the negative interest rate policy (NIRP) of their central banks.
This is the bond market’s tug of war. For the 23 NIRP countries, central banks prevail by administering interest rates. They have the ultimate power to do so.
In the United States, our central bank is trying to restore a positive interest rate policy (PIRP) and gradually return to a more normal stance. Thus the US is at one end of the tug of war with our PIRP, while the others are pulling in the other direction with NIRP as the rest of the world observes and positions itself in the middle.