Breaking News
Get 45% Off 0
🎯 Trump Tariffs Hit Markets: Here's What Smart Investors Should Consider
Recession-Resistant Stocks

Global Deflationary Pressures Are Mounting

By Wall Street Daily (Alan Gula)BondsDec 05, 2014 06:44AM ET
www.investing.com/analysis/global-deflationary-pressures-are-mounting-234816
Global Deflationary Pressures Are Mounting
By Wall Street Daily (Alan Gula)   |  Dec 05, 2014 06:44AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
DE10Y...
+2.71%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US10Y...
+1.22%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

Consumers often gripe that government price data understate the true nature of inflation.

Nonetheless, it’s safe to say that the cost of goods and services has been rising at a steadily slower rate in most countries.

In fact, according to GaveKal Capital, global inflation just hit a 59-month low.

And the recent, steep decline in the price of oil is going to cause further disinflation – a declining rate of inflation.

Sounds like a good thing, right?

In fact, this is actually a nightmare for central bankers who are actively fighting gargantuan deflationary pressures…

Central bankers would like to see a moderately high rate of inflation because this would decrease the real value of debt (and there happens to be a lot of debt).

As we know, inflation rates and interest rates are very closely linked.

Coupled with slowing global economic growth, disinflationary trends are pushing government bond yields down to never-before-seen levels.

The following table shows selected global bond yields below that of U.S. 10-Year: Treasuries.

Selected Global 10-Year Government Bond Yields
Selected Global 10-Year Government Bond Yields

The belief that the Federal Reserve is solely responsible for low interest rates in the U.S. is a common fallacy.

After all, the European Central Bank (ECB) hasn’t bought a single German Bund, and yet the German 10-year rate is a miniscule 0.74%.

This is because long-term government bond yields are fundamentally driven by growth and inflation expectations (at least for countries with a low risk of default).

Since much of Europe is on the brink of outright deflation, European sovereign yields continue to trend lower.

There’s a real risk that the eurozone becomes mired in a prolonged no-growth, deflationary malaise – the so-called “Japanification” of Europe.

This is why many policymakers are calling for the ECB to aggressively expand its balance sheet, like the Federal Reserve and the Bank of Japan have done.

Ignoring The Trends

The eurozone certainly has a lot of problems to contend with, including high sovereign debt levels and a flawed currency system.

However, global demographic shifts are also putting downward pressure on growth and inflation rates.

Fertility rates have been declining, and small families are becoming the norm. Basically, the global workforce won’t be expanding as quickly as it did over the past several decades.

Indeed, demography may help to explain a significant amount of the world’s secular economic stagnation.

Unfortunately, these trends will persist.

Yet, I continue to see calls for higher long-term interest rates in the United States. Perhaps the table above will help put the situation into perspective.

As I’ve said before, long-term Treasury rates in the United States will stay low for much longer than most people anticipate.

Central banks are losing ground in the war against deflation, thanks in large part to collapsing commodity prices in the short term, and demographic shifts in the long term.

Eventually, everyone will stop forecasting higher interest rates and instead start to wonder how long low interest rates will persist.

In this environment, I continue to believe that preferred stocks are one of the most attractive asset class categories for income seekers.

Safe (and high-yield) investing,

BY Alan Gula, CFA

Original post

Global Deflationary Pressures Are Mounting
 

Related Articles

Julia Khandoshko
Why Investors Are Eyeing Telegram’s 9.4% Yield Bonds By Julia Khandoshko - Feb 18, 2025 2

Telegram Group Inc. is a globally recognized messaging service company, offering a cloud-based mobile and desktop messaging application. Known for its strong focus on security,...

Global Deflationary Pressures Are Mounting

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Apple
Continue with Google
or
Sign up with Email