The economics of investing in bonds has become stupid as bonds make an even worse investment. As of late, bonds have been in a 40-year bull market. However, the real yields of reserve currency sovereign bonds are negative and are their lowest ever. This implies that a lot of investors that are long on the asset have not been seriously stung by a price decline. Based both on how things have worked historically and what is happening now, tax changes will also play an important role in driving capital flows to different investment assets and different locations.
U.S. Treasury yields edged higher, bouncing off their lows as equity investors took comfort in signs of growing confidence among businesses in the U.S. and Eurozone. In the U.S., the flash reading of the IHS Markit US. Composite purchasing managers index rose to a record high 62.2 in April from 59.7 in March. New U.S. home sales ran at a seasonally adjusted annual 1.02 million rate in March, up 20.7% from the previous month, the Commerce Department said. The positive economic data bolstered equities, weighing on demand for haven assets and pushing Treasury yields slightly higher.
In Europe, the flash reading of the IHS Markit Eurozone composite purchasing managers index rose to a nine-month high of 53.7 in April from 53.2 in March. Any number above 50 represents an expansion in economic activity. This comes as the growing pace of vaccinations in Germany and France were bolstering hopes that the Eurozone, a laggard in the global economic recovery, could start reopening its economy.
Such budding expectations have weighed on the values of Eurozone government debt, narrowing the gap between U.S. and German debt yields.
Debt issuance was in focus as investors digested $121 billion of new Treasurys from the 2-year and 5-year maturities. Ahead of the new supply, yields initially moved higher overnight as the market braced for the incoming issuance. But that bearish impetus waned after U.S. durable-goods orders fell 0.5% in March, largely due to a sharp slide in aircraft bookings. Economists were expecting a 2.2% increase.
Like recent sessions, the bond market remained buoyant on Monday, as equities lacked direction despite a round of better-than-expected corporate earnings.