Growth angst infects every corner of the world and bonds love it

The rally in global bond markets is picking up pace as economists slash growth forecasts, spurring central banks to turn dovish.

Growth forecasts are getting slashed from Europe to Australia, with central banks turning dovish amid risks ranging from a Chinese slowdown to pressures in local housing markets. Risk-off sentiment also swept Asian equity markets Friday ahead of U.S.-China trade talks next week, as uncertainty grew over a resolution before the end of a deadline for further tariffs.

Andrew Harrer/Bloomberg News

“Pretty much every central bank is now talking about global downside risks, and that’s helped bonds rally,” said Tano Pelosi, portfolio manager at Antares Capital in Sydney, who helps oversee the equivalent of $21 billion. “No matter where you look … at best there’s a neutral bias.”

Investors have been piling into debt ever since the Fed signaled that it would pause rate hikes, citing risks to the global outlook. The European Commission on Thursday cut growth forecasts for all the euro-region’s major economies from Germany to Italy and warned that Brexit and the slowdown in China threaten to make the outlook even worse.

The yield on 10-year Treasuries fell 4 basis points on Thursday, while dropping 5 basis points for similar-maturity German bunds.

“Increasing concerns over the global economy are pushing yields down around the world," said Shinji Hiramatsu, general manager of the fixed-income department at Sompo Japan Nipponkoa Asset Management. “The market is especially worried about the Chinese economy, with more signs of a slowdown seen in Europe.”

Expectations for the Bank of Japan to edge toward a normalization of its monetary policy have also dimmed. Morgan Stanley pushed back its call for a BOJ rate hike to October 2020, from April this year, analysts including Takeshi Yamaguchi wrote in a report.