Despite that, there is still a sense that events are about to come full circle. And that's because some of the players who had a crucial - though not central - part in creating the conditions that permitted a bubble in debt prices to start inflating about 10 years ago are finally reversing their role.
These particular players are the key members of Opec, the oil producers' cartel. In the early 2000s, global demand for oil was perilously close to supply. That meant the oil price recovered from its 1990s slump and enabled these small middle-eastern nations - even Saudi Arabia only has a population of 27m - to run up current-account surpluses that far exceeded their needs and even their ability to waste. Where else could they put a chunk of the unused surpluses than in US government debt? As a result, they helped keep long-term interest rates much lower than the strength of the US economy should have allowed and the rest, as they say, is history.
True, even combined, Opec's key middle-eastern players hold less US government debt than China, the biggest overseas owner of Treasury bonds. The data is a bit flakey, but, out of total US government debt approaching $18 trillion (£11.5 trillion) China is reckoned to own $1.3 trillion. Then, hiding behind banks chiefly in Belgium and the Caribbean, there is almost $1 trillion-worth of T bonds belonging to Opec nations and - for what it's worth - Russia probably owns about $100bn of US government debt.
Granted, the proportion owned by the oil exporters is small - 6 per cent or so - yet these players could have a disproportionately big effect on the price of debt. That's because much US government debt is not traded. About 30 per cent of what's outstanding is owned by various US government agencies who hold the stuff until maturity. Meanwhile, we can be absolutely confident that Opec members and Russia won't be buying more Treasuries. The question, therefore, is to what extent will they be sellers? Prices, however, are set at the margins, so these players won't have to do much selling to force prices markedly lower and, therefore, yields (ie, long-term interest rates) substantially higher.
That prices are set at the margins is highlighted by what's happening to the oil price. In the summer it spent most of the time over $100, but now - just four months after it last touched $100 - the price is 38 per cent below its one-year high. Yet, in a way, that's nothing. After all, the oil price is the most volatile of major asset classes (see table and
).
Oily and bouncy
| Oil Brent ($) | UK equities | Gold ($) | US Treasuries | ||
| 1994-2014 | Year-end value ($) | Ch on yr (%) | Ch on yr (%) | Ch on yr (%) | Ch on yr (%) |
| Average | 51.0 | 15.0 | 4.9 | 6.3 | 9.4 |
| Volatility | 34.2 | 42.8 | 15.7 | 15.9 | 32.9 |
Source: Oil - Spot oil Brent; UK equities - FTSE All-Share index; Gold - Comex; US Treasuries - CBOE 10-yr US Treasuries index (inverted)
Taking figures for the past 21 years (simply because my data for US Treasury bonds only goes back to 1993), on average the oil price has recorded a 15 per cent gain each year. But that has been at the cost of wild volatility. The 'standard deviation' of its year-on-year percentage changes (ie, the degree to which changes have swung around the average) is 42 per cent. That's another way of saying that two years out of three the percentage change will be anything between a 57 per cent gain and a 27 per cent loss; then, in the third year, the percentage swing will be even stronger. Perhaps surprisingly, US T bonds have been the next most volatile asset and - in comparison with oil and bonds - price changes in gold and UK equities have been meek and mild.
As to the reasons, that's guesswork. However, it does seem odd that equities prices should be so restrained. That's because they are set by an estimate of future company earnings, a figure that must be highly uncertain since it is the residue of variable income and costs, including both the cost of energy and of money.
Oil, meanwhile, is vital. Whether we like it or not, the global economy still marches to the banging of the oil drum. That helps explain its price volatility, but it may please importers and scare the daylights out of exporters that the average year-end oil price in the period 1994-2014 is just $51. Not just that, but the year-end price never closed above $50 until 2005 and there have only ever been two years when the price closed above $100.
In other words, history tends to confirm what bears of the oil price have said for some time now - that $100 for a barrel is almost as freakish a price as $20 and it's a fair bet that it's the lower of those two prices that we will see sooner.
