Rising equity markets have put pressure on corporate bond yields

Both government and short-dated corporate bond yields have hit new lows against a backdrop of rising equity markets.

While on the surface, this presents a conundrum, essentially bond markets are pricing in lower rates for longer and the prospect of spare capacity subduing price pressures. In some cases, post-tax yields at the short-end of the curve are now too low for investors to contemplate seriously. In fact, with so many unknowns still plaguing the economy, government bond yields could yet fall further, despite little room for further declines. This scenario has led to a hunt for yield which has pushed investors into higher beta or more speculative assets. Indeed, high levels of cash, yielding next...