Can vessel values in dry bulk be predicted? A study on the relationship between government bond yields and vessel valuations

Abstract

Seaborne freight of dry bulk commodities is an important gauge on the global economy. How dry bulk shipping markets move is dependent on demand and hence economic growth, further import and export volumes and commodity prices. The US and China are among the most active importers and exporters of dry bulk commodities globally, in addition to being good representatives of global economic growth. This paper investigates the interaction between dry bulk vessel valuations and economic growth with the purpose of establishing a leading indicator on vessel values, here represented by the 18-month change in US and Chinese 10- year government bond yields. The findings in this paper cast a fascinating light on the effects changes in government bond yields has on vessel values through cycles and vessel classes. The inverse relationship is stronger for the bigger vessels, albeit explaining less of the value fluctuations than its smaller peers, indicating the presence of additional influential factors. Hence, this paper provides a plethora of insight for decision-makers on whether to buy or sell dry bulk vessels within a 12-18 month time period.