The most popular theory explaining the ongoing 30-year slump in bond yields is referred to as the "global savings glut." This theory holds that demographic patterns in larger economies made it so that the high-savings age bracket of people aged 35 to 64 grew rapidly, thereby magnifying the population's overall savings.
Aside from the demographic correlation, the global excess of desired saving over desired investment is believed to have a geographic root. The global savings glut is thought to emanate largely from China and the Asian emerging market economies, as well as oil nations like Saudi Arabia. These regions and their economic activities are large contributors to the low global interest rates. Furthermore, the global savings tend to flow towards the United States, and impact domestic interest rate balances and economic progress.
Recent news claims that, for multiple reasons, the glut has stopped growing and is on track to begin shrinking in a few years. Largely as a result of the aging of the aforementioned age bracket, the global saving propensity will fall rapidly after 2020.
With a decline of global savings comes an about-face on the markets, and large rises in interest rates, as well as the possibility of a huge fall in global equity valuations. The aging of the relevant age bracket will occur in a decade's time, yet the world's saving propensity will begin falling before then, with earliest results becoming visible by 2020.
In the past two decades, benchmark ten-year Treasury yields have averaged at a lower figure, or 3.74%, when compared to the 8.97% of the previous 20 years before that. Experts believe that another shift will be in order in the next few years, as we see the rapidly aging demographic fade away. This will result in neutral responses towards interest rates and asset prices.
Advisers suggest reducing the duration of bond holdings to minimize the window of time of risk involved, and hopefully avoid the potential downturn that may begin in the 2020s. Equity valuations and longer dated bonds may have done well after 1982, but come 2020, that may change into a major fall.