Bonds Beat a Global Retreat
The sell-off in the bond market has been worldwide in scope and not just confined to the United States. Since the major bond markets of the world are not being buffeted by rising inflation, why should this be the case?</br></br>Last year, Salomon Brothers Inc.'s World Government Index was up a respectable 13.27 percent. Around the world this year, the 10-year Treasury is off 4.8 percent, while the 30-year bond is off 7 percent; 10-year German government issues are off 4.9 percent; French bonds, off 5.3 percent; Italian bonds, off 6.3 percent; and British bonds, off 11 percent. This makes for a truly global backup in yields, even though none of these industrialized nations is facing an inflation problem.</br></br>Stuart Waugh, the manager of PaineWebber Inc.'s Global Income Fund, believes that the sell-off is mainly due to the demise of the five-year bull run in the bond markets; global markets are retrenching.</br></br>Further, "what went up the most last year has come down the most so far this year," Waugh said. Bonds in "emerging market" countries, for example, rose 43.87 percent in 1993 as measured by Salomon's Total Rate of Return Brady Bond Index. This year, they have declined anywhere from 12 percent to 33 percent.</br></br>Waugh also said that the emerging countries' bond markets do not have the depth or resiliency of the U.S. market. In the United States, there are natural buyers of Treasury issues - when Treasuries sell off, insurance companies may buy them to match their liability streams. That doesn't happen in the emerging countries. The emerging markets are for opportunistic buyers.