An obstinately dovish U.S. Federal Reserve and a European Central Bank intent on carrying out its own, massive Quantitative Easing (QE) bond buying programme have pushed Treasury rates to near historic lows and European rates to obscene levels. As we write, a 10-year German Bund is yielding 0.20% and a 10-year French OAT is yielding 0.50%. Moreover, an unimaginable absurdity (thinking back just a year) -- offered to markets by our interventionist central bankers -- are PIGS 10-year government bonds (Italy yielding 1.30%, Spain yielding 1.29%, Portugal yielding 1.76%) yielding less than a risk-free U.S. 10-year Treasury at 1.91%.
Can this global interest rate race to the bottom continue? Will we soon see negative rates on some European 10-year government bonds? As of February, a large majority of bond investors worldwide expressed doubt that rates will continue lower from here. Moreover, investors overwhelming believe that U.S. and European rates are…