A look at government bond yields since 1860
ALTHOUGH government bonds are usually regarded as a “safe asset”, they have been highly volatile over the long term. Spanish yields may just have reached a high for the euro-area period, over 7.5% on July 24th, but they have been higher in the past—during the revolutionary period of the 1870s, the loss of colonies like Cuba and the Philippines in the 1890s, the civil war of the 1930s and, of course, the inflationary period of the 1970s. During the latter era all bond yields rose sharply, creating a fantastic buying opportunity in the early 1980s. For the last 30 years, the trend in American and German bond yields has been relentlessly downward, creating the current historic lows. No doubt some of the buyers of German and American bonds are Italian and Spanish investors fleeing their domestic markets. While such yields look a terrible bargain by historic standards, it is worth noting that low American yields persisted for a long time in the late 1940s and early 1950s before inflation started to take its toll.
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