Buttonwood: Apocalypse, not yet

Posted: May 24, 2013 in economy
Tags: , ,

UK Only Article: 
standard article

Issue: 

The sleepwalkers

Fly Title: 

Buttonwood

Rubric: 

Bond yields are very low, but Japan’s example shows they may stay low

IS THERE a bond bubble and is it going to burst soon? The Spectator, a British political weekly, ran a cover story citing the existence of a bubble back in September 2011. Yields are even lower now than they were then.

Calling the top of an asset bubble is extremely hard, as sceptics of the dotcom boom in the late 1990s will recall. History suggests that buying government bonds at yields of 2% or less is a losing proposition in real terms; those who bought American Treasury bonds on a yield of 2% in 1945, for example, did not see a gain in their purchasing power until 1989.
But there is one important exception to the rule. Japanese ten-year bond yields fell below 2% in 1998 and have stayed below that level almost ever since. Thanks to deflation, investors have still managed to earn positive real returns. Betting against the Japanese bond market has been a losing game.
In a sluggish economy, it is quite …

via Economic Crisis http://www.economist.com/news/finance-and-economics/21578452-bond-yields-are-very-low-japans-example-shows-they-may-stay-low-apocalypse?fsrc=rss

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