The instability of the global financial system and the potential for another crash have been underscored by a major sell-off of government bonds this week. Yesterday saw European markets display levels of volatility not seen since the euro zone debt crisis turmoil of three years ago.
In the course of the day, the yield on the German 10-year government bond, which moves inversely to its price, jumped by 21 basis points (a 0.21 percentage point rise) to 0.80 percent, before falling back to its opening level of 0.59 percent.
In the middle of last month, the yield was just 0.05 percent, with predictions that it was on its way to zero.
Other markets in Asia and the United States have also showed considerable volatility. The US bond market this week suffered its longest losing streak since 2011, with the yield on the 10-year bond treasury note rising at one point to its highest level for the year.
It has been estimated that in the last two weeks alone some $2 trillion has been wiped off global share and bond markets.
The rapid rise in European yields indicates that there has been a massive exit from the bond market after investors and speculators had shovelled billions of dollars into purchases following the initiation of the European Central Bank’s asset purchasing program, which pumps €60 billion per month into financial markets.