U.S. treasurYs saw a slight bump Monday after news of the G20 Summit pledge to cut deficit spending sparked concerns about a slowed recovery, but experts caution that significant and lasting changes in global bond markets will hinge on more than promises.
Members of the G20 committed over the weekend to slashing their national deficits in half by 2013 and steadying their debt loads by 2016.
Diplomats and finance ministers hailed the compromise pact as a sign of renewed commitment to coordinated global economic recovery, but experts on sovereign bonds and government bonds said promises, particularly by European governments, don’t really have the power to move markets anymore.
Even as world leaders emerged from their Toronto meeting with a communiqué that pledged "to boost demand and rebalance growth, strengthen our public finances, and make our financial systems stronger and more transparent," spreads between benchmark German bonds and those of troubled debtor nations such as Spain and Greece widened, indicating still shaky confidence.
"Sovereign debt investors are not reacting as much anymore to the pledges and talk," says Timothy Strauts, an analyst at Morningstar. "When they were coming up with all the rescue plans with the European Union, those spreads would tighten up and then go right back to where they were a day or two later."
Strauts noted that the SPDR Barclays Capital International Treasury Bond fund (BWX), an exchange-traded fund that's comprised of more than 50% European treasurys, barely reacted to news of the G20 pact. It's dropped 6% since late December, when the extent of the European debt crisis was just coming to the fore.
"Maybe it's a first step, but I don't think those spreads are going to tighten," he said.
Jonathan Lemco, a sovereign credit analyst at Vanguard Group, said investors had few expectations about the G20 meeting and were largely unsure of the outcome Monday, which was marked by very light trading. Down the line, investors may benefit from the communique's effects more concretely.
"In theory, there should be a mildly positive reaction," he said. "Eventually, if there is less debt issued, then scarcity kicks in. All things being equal the value of the bonds should increase."
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