Goldman Sees Japan's Bonds Outgunning Treasuries to Drive Market

  • Average yield on global debt index falls 30 bps this year
  • ECB stimulus extension may hold key to future direction

Japanese government bonds are outgunning U.S. Treasuries in driving global debt markets, according to Goldman Sachs Group Inc.

While Treasuries are exerting upward pressure on longer-dated debt yields around the world, it’s the movement lower led by Japanese sovereign securities that is defining market direction, Goldman’s analysis of bond volatility shows. Yet, it may be German bunds that determine the future path of global bond yields depending on how the European Central Bank extends stimulus, Francesco Garzarelli, Goldman’s co-head of fixed-income strategy, wrote in an e-mailed report.

“U.S. Treasuries continue to exert upward pressures on global bond yields but with a strength that has not been able to match that of Japan,” London-based Garzarelli wrote. “If the ECB can surprise in a reflationary direction, as we are inclined to think it will, longer-dated nominal bonds would be a sell.”

The ECB is scheduled to announce its policy decision on March 10. The average yield of the securities in Bloomberg’s Global Developed Sovereign Bond Index dropped 30 basis points this year to 0.72 percent Tuesday. It touched a record-low 0.686 percent last month.

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