FTSE World Government Bond Index (WGBI) Sinks to New Lows

FTSE Russell offers a comprehensive, modular range of indices measuring the performance of fixed income markets globally. Broad-based indices that measure government, government sponsored, collateralized, and corporate bonds from developed and some high ranked emerging countries are among the most watched by global investors. FTSE World Government Bond Index is a broad index providing exposure to the global sovereign fixed income market, the index measures the performance of fixed-rate, local currency, investment-grade sovereign bonds. It comprises sovereign debt from over 20 countries, denominated in a variety of currencies.

It’s hard to recall last time when these indices were exposed to this kind of enormous pressure. Indeed, global bond prices have fallen sharply in recent weeks as the U.S. government sells massive amounts of Treasury debt and investors grow increasingly convinced that central banks need to keep interest rates high for an extended period of time.

An ongoing sell-off in global government bonds has pushed recently the U.S. 30-year yields to 5% for the first time since 2007 and Germany's 10-year yields to 3% on Wednesday, October 4, potentially accelerating a global economic slowdown and hurting stocks and corporate bonds.

There is growing awareness that interest rates in major economies will remain high for longer to curb inflation, continued strong U.S. economic data and traders unwinding their positions sharply on a rebound in bonds. In any case, the market stance looks crystal clear: if there is no way to extract investment value from the moderate-risk-assets such as high-yield banking deposits, stocks and real estate under current conditions of super-high interest rates, then the government should provide capital gains. Therefore, it should give a high return on investment, not a low return, given the rampant inflation.