Global volume of negative yielding bonds has been declining massively since the beginning of the year. While at the beginning of the year the volume of these bonds was $ 17.8 trillion, now it is "only" $ 12.3 trillion, which represents a significant decrease of 31%. The bond bubble has been thus popping to a certain extent.
The above-mentioned decline was, of course, caused by an increase of the required bond yields to maturity, respectively by falling bond prices. According to Bloomberg, the average global bond yield to maturity has risen sharply by 0.34 percentage point to the current level of 1.17% since the beginning of the year. This is associated with a significant decline of the broadest global bond index, Bloomberg Barclays Global Aggregate Bond, by 2.9%.
In this respect, Czech government bonds still appear to be relatively attractive, as their yields to maturity are currently positive, albeit only very slightly. The yield on a two-year government bond is currently 1.2% and 1.8% on a ten-year maturity. However, we still believe that Czech yields are also too low, well below the official rate of Czech inflation. For this reason, we think that Czech yields should gradually rise further in the medium term and market prices of government bonds should continue to fall. Therefore, we keep the average duration significantly shorter compared to benchmarks, which protects our investment portfolios from the expected further rise of bond yields to maturity, respectively from the realization of interest rate risk.
Investment Strategist at Conseq Investment Management, a.s.