The financial world âseems upside downâ, writes Michael Heise, chief economist at Allianz, in Wednesdayâs FT, noting that the spectre of inflation haunts countless TV and radio debates while gold and other precious metals are the flavour of the moment â and yet, he notes (our emphasis):
⦠at the same time, yields on the main bond markets seem to be falling into an abyss, as if inflation had been nailed into its coffin for the foreseeable future. Yields on German government bonds have been flirting with all-time lows in early summer, and US long-term interest rates are still hovering at an exceptionally low level.
In Japan, where the world âinflationâ is barely in the vocab, the markets are positively âscreaming deflationâ as FT Alphaville noted earlier, with the yield on 10-year Japanese government bonds reaching 0.995 per cent on Wednesday â the first dip below the key resistance level of 1 per cent since August 2003.
Indeed, notes Hiese:
Bond markets have not only been ignoring all talk about inflation, but they are also absorbing quite a massive increase in the supply of government bonds in recent quarters. The fact that increasing supply is not depressing prices and pushing up interest rates is reminiscent of the Japanese experience, where standard economic theories have not given good guidance for some years. An obvious difference between JGBs and the US Treasury or German Bund markets is that Japan actually experienced deflation for a number of years, which of course justifies low long-term bond yields.
Call it âjustifiedâ or a âseven-year itchâ â back to the yields of 2003 â but there are some extreme trends taking hold in Japan. Take currency markets for example, where the yen has reached its strongest level against the dollar since 1995 in recent months, hitting Y85.52 on Wednesday. Some fixed-income analysts meanwhile are predicting that 10-year yields could fall to 0.95 per cent by September.
The yenâs strength against the dollar partly reflects concern about US economic growth, following weaker-than-expected data this week on consumer spending, home sales and factory orders.
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http://ftalphaville.ft.com/blog/2010/08/04/305921/a-yen-for-bonds-in-upside-down-financial-world/
⦠at the same time, yields on the main bond markets seem to be falling into an abyss, as if inflation had been nailed into its coffin for the foreseeable future. Yields on German government bonds have been flirting with all-time lows in early summer, and US long-term interest rates are still hovering at an exceptionally low level.
In Japan, where the world âinflationâ is barely in the vocab, the markets are positively âscreaming deflationâ as FT Alphaville noted earlier, with the yield on 10-year Japanese government bonds reaching 0.995 per cent on Wednesday â the first dip below the key resistance level of 1 per cent since August 2003.
Indeed, notes Hiese:
Bond markets have not only been ignoring all talk about inflation, but they are also absorbing quite a massive increase in the supply of government bonds in recent quarters. The fact that increasing supply is not depressing prices and pushing up interest rates is reminiscent of the Japanese experience, where standard economic theories have not given good guidance for some years. An obvious difference between JGBs and the US Treasury or German Bund markets is that Japan actually experienced deflation for a number of years, which of course justifies low long-term bond yields.
Call it âjustifiedâ or a âseven-year itchâ â back to the yields of 2003 â but there are some extreme trends taking hold in Japan. Take currency markets for example, where the yen has reached its strongest level against the dollar since 1995 in recent months, hitting Y85.52 on Wednesday. Some fixed-income analysts meanwhile are predicting that 10-year yields could fall to 0.95 per cent by September.
The yenâs strength against the dollar partly reflects concern about US economic growth, following weaker-than-expected data this week on consumer spending, home sales and factory orders.
...
http://ftalphaville.ft.com/blog/2010/08/04/305921/a-yen-for-bonds-in-upside-down-financial-world/
