Germany’s Bond Slump Revives Memories of 2003 Japan for Barclays

The selloff in German government bonds is prompting some comparisons with a slide in Japanese securities in June 2003 that may have implications for equities as well as fixed-income markets.

A similar pattern of yield changes, volatility and Federal Reserve policy signals all support the observation, according to Barclays Plc’s global head of asset allocation Jim McCormick. The 2003 decline in JGBs led to the largest cumulative loss in Japan’s seven- to 10-year government bonds in the past 15 years and yet equities rallied 40 percent over the following year, McCormick wrote in an e-mailed report. He cautioned against drawing the conclusion that history is repeating itself.

“For asset allocators, perhaps the most important lesson from 2003 is that ultra-low bond yields should eventually trigger flows out of fixed income and into equity,” McCormick wrote. “There are signs this is happening already. The relative outperformance of equities versus bonds is by far the biggest asset allocation theme of 2015 thus far.”

Germany’s 10-year bund yield climbed as much 19 basis points, or 0.19 percentage point, to 0.78 percent on Thursday, the highest level since Dec. 8. The yield touched a record-low 0.049 percent as recently as April 17.

The nation’s securities returned 0.4 percent this year through Wednesday, according to Bloomberg World Bond Indexes, while the Stoxx Europe 600 Index of stocks gained 15 percent including reinvested dividends.