August does not like to be considered a dull summer month. And people in the markets should not be too surprised. Because it is not the first time. In August 2007, the interbank money market collapsed – an early warning of the approaching financial crisis. In August 2015 the month's bit of fun was the so-called "black Monday": the sudden depreciation of the Chinese yuan shocked financial markets, Chinese stocks plunged and so did markets in the United States. All very lively. And this time? The bond markets are knocking off new records with such ease that you wonder quite what it is going on – and whether it is going to end nastily soon?
August's record-breaking feats are just too impressive. In the United States, the yield curve (of 2- and 10-year government bonds) inverted for the first time since 2007. Yields on 30-year U.S. government bonds slipped below 2% for the first time in history. And, in Italy, 10-year bonds slipped below 1% for the first time. In Germany, 10-year German government bonds closed at -0.71%, their lowest level ever, and 30-year bonds plunged into negative yield territory for the first time in history. This means that you cannot buy any German government bond with a positive yield. Those, however, who bought 100-year bonds from a large German state in March were 75% ahead in August. Finally, in a sign of just how "positive" August has been, 17 trillion dollars (USD) in bonds were trading negatively across the globe by late summer. You might call it global warming in bonds – and perhaps just as worrying a sign as the climate version of something going fundamentally wrong.
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