US bond yields bottoming: We have argued for a year (most recently in our March 2^nd Weekly View) that US bond yields need to be understood in a global context and that the US yields were being held down by German yields.  The sharp rise in German yields (10-year yields have risen from ) to ).8% in just two weeks) has led to a rise in US yields despite the weaker economic data.  Reflecting on the chart below, which shows the yields on the highest quality US corporate bonds, we believe that the low in early 2015, which matched the low in mid-2012, could mark the bottom for this cycle.

David Fuller's view

Here is The Weekly View.

Subscribers will be able to see that chart in The Weekly View, but here are some government yields to keep an eye on: USA 30Yr, UK 30Yr, German 10Yr, Swiss 10Yr and Japan 30Yr.  My guess is that they have all bottomed for the cycle, but inevitably one never has confirmation of that until well after the event and yields are considerably higher. 

However, if my guess is wrong and we have not seen cycle lows for the bonds shown above, then the global economy and stock markets are in trouble.  However, that view is in contrast with the modest GDP growth that we have already seen, and more importantly, the strong balance sheets and respectable earnings of many shares, not least corporate Autonomies.   

Assuming government bonds above have bottomed in terms of their yields, the manner and extent of their rises will be very important.  If we are lucky, bond yields will move higher on a gradual basis, in line with a slowly recovering global economy.  This would be less damaging for bond holders, and stock markets would benefit from any transfer of funds from fixed interest to equities.   Unfortunately, recovering bond yields are unlikely to reflect merely their underlying economies.  There is the market mob to consider and a potential liquidity problem with too many people scrambling towards the exit at the same time.  If so, yields would spike higher, causing some turbulence in stock markets, even though equities are now a far better investment over the medium to longer term than fixed interest markets.