The global bull run that started in 1985 is now one of the most intense in the debt market’s 700-year history, comparable with a deleveraging and economic growth spurt that followed the Napoleonic wars.
Despite longstanding predictions of the end of the bond bull market that started after former Federal Reserve chair Paul Volcker quashed inflation in the 1980s, government debt has kept rallying this year, taking the average annual fall in yields to 17.4 basis points (0.174 percentage points) over the past 34 years.
That puts it on the cusp of surpassing the 1873-1909 bull run in length, and makes it the strongest decline in long-term interest rates since 1817-1854, when bond yields declined by 22 bps a year, according to research by Paul Schmelzing, a visiting scholar at the Bank of England.
The only other stronger periods of declines since Italian city-states first began issuing bonds in the 12th century were under the reign of Louis XIV, Venice’s 14th and 15th century heyday and during the stability that followed the Peace of Cateau-Cambrésis in 1559. That ended the European power struggle between Habsburg Spain and France over control of Italy.
Although more than $15tn of bonds now trade with negative yields, the fact that the world has seen comparable, if rare, falls in bond yields, and the long-term nature of the decline since the 12th century, casts doubts over suggestions that the global economy is experiencing something unprecedented, according to Mr Schmelzing.
“The ‘secular stagnation’ theory is highly questionable against this evidence: the fall in real rates has in fact been continuous for centuries, and recent years merely witnessed a trend-return,” he said.
The data on global, inflation-adjusted bond yields have been collected by Mr Schmelzing for his upcoming PhD thesis at Harvard. The data were first published by the Bank of England in January 2017 and updated for the Financial Times to include the bond market’s rally since then.