2015 Guild Basic Needs Index

March 2015 Index

  July 2014 Index August 21, 2014 What Is the Bond Market Telling Us? Interest rate levels have been confounding many professional investors around the globe. U.S. government benchmark 10-year interest rates began 2014 near 3.00 percent, but they have been sliding back to about 2.40 percent recently. The rally in bond markets and corresponding declines in yields are even more pronounced in Europe, where benchmark interest rates are actually at multi-century lows — even in the economically troubled southern periphery. In Japan, despite the central banks’ and governments’ massive effort to reflate the economy, bond yields haven’t budged. The developed market economies are having a hard time sustaining growth, in part due to structural issues like demographics and high regulatory burdens. However, lower expected potential economic growth is just one reason why the prices of the debt issued by deficit-happy, heavily indebted governments keep going up. These countries can continue to borrow money without offering investors a real return as long as: • Depositors don’t trust banks and fear bail-ins (this is especially the case in Europe, where many large depositors prefer government debt over large cash balances) • Geopolitical instability remains in the headlines • Banking executives prepare for more frequent stress tests • Investors remember being caught in illiquid investments in 2008 and 2009 • Asset allocators with strict mandates crowd into high-rated investments • There is desperation for yield and/or perceived safety • There remain limited alternatives for acceptable collateral • Bank lending remains constrained; banks’

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