10 Countries With The Highest 10-Year Bond Yields Today

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Which are the countries with the highest 10-year bond yields today? Any book or article on long-term investing will usually suggest diversifying a portfolio and allocating a certain portion of it towards bonds, particularly government bonds. Government bonds, similar to corporate bonds, allow governments to borrow money from markets. In turn, people or companies can buy these bonds, lending money to a government and expect to protect their money from inflation, and obtain some income through investing in a relatively less risky securities.

There are various types of government bonds, but usually most of them entitle the investor to periodic interest payments and the return of the principal amount once the maturity date of the bond expires. Governments that issue bonds usually specify the amount and the coupon (interest) and then auction them off. Once on the market, bonds change hands repeatedly and because the bond price fluctuates based on the market demand while the coupon stays the same, investors can get higher or lower profits from their bonds. For example, if an investor buys a bond that has a par value of $1,000 (he lends $1,000 to the government) and an annual coupon rate of 5%, he gets $50 every year in interest and then the whole $1,000 amount once the bond reaches maturity. However, if the investor decides to sell the bond for $800, the person who bought the bond would receive the same $50 per year, but because he paid only $800 for his bond, his rate of return will be 6.25% instead of 5% ($50/$800).

So, it might look like a good deal for someone to get a bond at a price below par and generate a higher rate of return. Except that it is not. Because the supply for bonds is unchanged or almost unchanged, the price is driven mainly by demand. So, if a bond’s price decreases, it means that there is less demand for these bonds. In turn, this suggests that investors are less interested in buying the bonds of the respective country. This could be because of some economic uncertainty that might suggest that the government might not be able to repay back the debt once it reaches maturity. Inflation is another factor that affects yields and if the expectations for inflation are high, the bond yields are also driven higher, as investors expect to be get a higher rate of return. Higher inflation can also be a sign of economic turmoil.

Countries with Highest Debt to GDP


The opposite is also true, which is why many wealthy countries will usually have very low bond yields contrary to the countries with the highest 10-year bond yields today.

If investing in government bonds seems to complicated, there are other instruments that allow exposure to government debt: Exchange-Traded Funds (ETFs). ETFs are publicly traded on the stock market and their return replicates the one of the bonds that they hold in their portfolio. Investing in a bond ETF has many advantages, such as an easy access to buy them, which can be done through most brokerage accounts. In addition, many ETFs hold a basket of different bonds, so the investor can diversify his exposure to bonds of different countries, or to bonds with different maturities. For example, the Vanguard Long-Term Bond ETF (NYSEARCA:BLV) provides exposure to US corporate and government bonds with maturities of at least 10 years. US bonds amass over 89% of the Vanguard Long-Term Bond ETF (NYSEARCA:BLV)’s portfolio, but it also holds Canadian, Mexican, Dutch, and other countries’ bonds. For more international exposure, one might consider the Vanguard Total International Bond ETF (NYSEARCA:BNDX), which offers exposure to foreign government and corporate bonds and includes Japan, France, Germany, Italy, and the United Kingdom among the issuing countries. The Vanguard Long-Term Bond ETF (NYSEARCA:BLV) contains around half of corporate bonds, while the Vanguard Total International Bond ETF (NYSEARCA:BNDX) includes 71% government bonds. For more ideas on ETFs that offer exposure to various bonds, take a look at our list of 11 biggest fixed income ETFs in the US.

In the US, the 10-Year Treasury note is one of the most important debt securities and its yield is watched closely. The 10-Year Treasury yield is considered a metric that shows the confidence that investors have in economic growth and is taken into account by the Federal Reserve when it makes its decision to change the fed funds rate. Around the world, the 10-year Treasury note is the most popular debt instrument, because it is backed by the US economy, which is considered the strongest in the world, so it carries almost no risk. In many cases, the yield for the 10-year Treasury note is taken as the risk-free rate, which is used in various formulas, such as the Capital Asset Pricing Model.

Taking everything said earlier into account, it won’t come as a surprise that the 10 countries with the highest 10-year bond yields today are far from being very economically stable. Let’s take a look at the list and see the developments that have pushed these countries’ 10-year yields so high.

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