Bond yields plunge (Dec 08)

Over the past month, global short-dated bond yields have plunged as the markets have come round to our view that official interest rates in the UK and elsewhere will drop to record lows. What’s more, bond yields further along the curve have also fallen as the markets have started to weigh up the possibility that policymakers will have to resort to unconventional ways of loosening monetary conditions, such as buying bonds in order to boost central bank reserves. Nonetheless, we still think that there is scope for both short and long-dated bond yields to fall further.