Gavekal Capital: Bond Yields Approaching 1-Year Lows

Wednesday, May 28, 2014

Bond Yields Approaching 1-Year Lows

The US 10-year bond has dropped by 8 bps today and has slammed through what was looking like support around the 2.50% level. If it closes at current levels than this will be the lowest close since 6/20/13.

The 30-10 spread has widened by 7 bps during May, however, it is still down YTD. Same goes for 30-10 breakeven inflation spread. The front end of the yield curve (10-2 spread) has been narrowing all year as well and not just in the US.

A falling 10-year yield hasn't been the greatest sign for forward P/E ratios. However, since the end of 2011 this relationship has broken down somewhat.

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Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
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