Investors are anticipating a fresh wave of stimulus measures to tackle flagging growth, as the White House said it was considering a new round of tax cuts to boost the economy.
Central bankers will gather at their annual Jackson Hole meeting in Wyoming on Thursday as warning signals from financial markets add to rising pressure to come up with ways to support the global economy. Asian markets were higher in Monday trade on hopes of such measures.
A key part of the US yield curve — which reflects market expectations of future interest rates — last week inverted for the first time since the summer of 2007, a move seen by many as a leading market indicator of recession.
Weak data from various countries, including Germany and China, have fuelled fears that the global economy is running out of steam.
Concerns over the economy have sent investors fleeing into the perceived safety of government bonds, driving yields down to record lows and boosting the pile of debt that offers a negative rate of interest over $16tn. Last week, the US 30-year Treasury yield fell below 2 per cent for the first time, while in Europe, several countries have no sovereign debt trading with positive yields.
“There’s a risk that you will never get a positive yield on a safe asset again — so buy them now while stocks last,” said Gareth Colesmith, head of global rates at Insight Investment.
Investors poured almost $500bn into fixed income mutual funds in the first half of this year, according to Morningstar, the fastest rate for at least a decade.
As a result, the price of highly rated countries’ debt has jumped by an average of 6.4 per cent so far this year, putting this year on track for the strongest rally for the asset class since 1995, according to ICE Bofa Merrill Lynch bond indices.
“Markets have an insatiable appetite for easing,” said Nicola Mai, a London-based portfolio manager at Pimco. “No matter what central banks do, they want more.”
Rating agency S& P Global warned last week it was on “high alert” over the US economy and now sees a roughly one-in-three chance that the world’s biggest market will fall into recession in the next year.
