> Falling U.S. Treasury yields were adding to pressure, she said, adding: “If U.S. Treasury (yields) were much higher... we would have been talking about a different kind of level.”
This is a global phenomenon. Real 30-year yields are steeply negative in the US as well, with nominal yield at 1.85% and year-over-year CPI above 5%.
But it helps to zoom out. This is part of a multi-decade trend in ever lower 30-year yields stretching back to the Regan administration.
I challenge anyone to find a channel that long and that persistent (except for possibly the CPI). Keep following and you make the prediction of nominal 30-year yields touching zero within 3 years.
Somebody is on the wrong side of this trade in a big way.
Those who say the inflationary spike is temporary and will mean revert are buying bonds with wild abandon because once you break zero, you can always go deeper negative. And as yields fall, bond prices rise.
Those who say we're on the road to permanent inflation and possibly more are looking for inflation hedges. The odd thing about this is that gold, the traditional inflation hedge has gone nowhere fast.
It's also possible that both sides are wrong and what will actually happen will be unlike anything that has come before in terms of the ferocity and diversity of forces at work and ultimate pain/suffering.
For right now, both extreme sides can point to data supporting their outlook. But for how long?
> Somebody is on the wrong side of this trade in a big way.
The reason why European yields are so low is because financial institutions are forced to own govt bonds. That is it.
Europe is one of the only markets where you really see this, yields in the US could certainly move higher or lower but they trade at a rational level. In Europe, the price is just wrong (because no-one is doing the trade to be right or wrong, they are doing the trade because of regulations).
Also, making some kind of linear prediction for rates based on the drop over the last 40 years makes no sense. Rates are actually stationary, but the reason they have trended strongly over the past four decades is because of changes in inflation expectations and aging of society which has brought down the natural rate of interest significantly. Outside of this, the underlying properties of rates are stationary...the same as every other valuation measure.
I use Bitcoin to satisfy my inflation-hedging appetite. I wonder to what extent cryptocurrency enthusiasm is suppressing gold prices, as increasing number of people view Bitcoin as a viable inflation hedging alternative to gold.
If Bitcoin didn't exist, I would probably own more gold.
> Somebody is on the wrong side of this trade in a big way.
There's an old adage that equity traders are the short-bus riders and bond traders are riding the long bus. I tend to think there's something to this and thus I tend to think the bond traders are more likely to be right here.
> The odd thing about this is that gold, the traditional inflation hedge has gone nowhere fast.
> Somebody is on the wrong side of this trade in a big way.
My understanding is that banks get negative interest on deposits in the banking system over night from many European central banks. So if you pay say -0.x% on deposits then 1.85% over 30y is a bargain.
Amateurs. Switzerland has a 50 year bond that was trading as low as -0.5%. Imagine that, paying CHF128 to get CHF100 sometime in 2070.
This comes with a whole new approach to finance, such as infinite duration mortgages (you never pay them back). And they even have those with a floating interest rate, in case you would like to bet your entire net worth on the idea that rates will stay this low till you die (and till your children, who will inherit the house with the mortgage, die, and till their children ...). Brave new world.
You want more fun? Here is the Portuguese Central Bank, some time ago, mandating all banks to apply negative rates to their mortgages within 10 days, in case the corresponding Euribor happens to be negative.
I think it is notable that Switzerland also has very favorable capital gains laws though, at least for private investors. Could hold stocks, gold / silver or crypto in Switzerland and not pay tax on gains as long as you hold them for 6 months or more, and didn't make more than 50% of your income from capital gains. [1]
In Switzerland you pay tax on the rent you could in theory receive as a landlord minus maintenance cost and mortgage payments. I suspect that this is a far bigger contributor to infinite duration mortgages than the bond market.
inflation, negative nominal rates (to say nothing of real rates) and if the central banks so much as breath towards tightening the enormous asset bubble they have blown begins imploding...
People have been saying this since 2010. I think it's much more likely that negative yields are the new normal. I expect <10yr yields to go negative in the US eventually. The fed was able to tighten rates in 2016-2017 without anyting bad happening. Everyone keeps thinking things will end badly. Maybe they won't. My $ is on the latter.
I don't see an alternative for managing secular stagnation and growth traps. Metaphorically, you're essentially guiding and supporting someone passing out to the floor so they don't get a concussion when they hit their head ("soft landing"). You're (or rather, your macro economy is) headed to the floor no matter what.
See: Japan [1]
1. What is Japanification?
It’s a term used by economists to describe a state of chronically anemic economic growth and feeble inflation or even deflation similar to the conditions faced by Japan since a giant real-estate bubble popped in the early 1990s. It’s used to convey the alarming prospect -- often discussed in Europe, which has staggered economically ever since the 2008 financial crisis -- of sluggishness so deep that it is extremely difficult to escape. Even after Japan’s central bank embraced two extraordinary forms of monetary stimulus -- negative interest rates and asset purchases worth more than the entire size of the world’s third-largest economy -- the country has yet to return to a positive growth cycle strong enough to generate 2% inflation after nearly three decades.
2. What is secular stagnation?
It’s a term originally coined by the Harvard economist Alvin Hansen in the 1930s to describe the tendency of mature industrial economies to move toward instability in the absence of large amounts of public investment. It echoed the ideas laid out by John Maynard Keynes in his seminal 1936 treatise, “The General Theory of Employment, Interest and Money.” At the time, the global economy was mired in a deep depression, and theories like Keynes’s and Hansen’s offered an explanation and a prescription for the way out. In recent years, amid rock-bottom interest rates in the wake of the biggest global downturn since the 1930s, another Harvard economist -- former U.S. Treasury Secretary Lawrence Summers -- revived the phrase to capture basically the same idea.
3. Are they the same thing?
Essentially, yes. Japanification can be seen as a subset of secular stagnation, with characteristics matching those that have specifically plagued Japan. The country’s rapidly aging and shrinking population has contributed to the slowdown of economic activity, and to a high saving-low investment environment despite ultra-low interest rates. The Bank of Japan also complains about a deflationary mindset that has taken hold of consumers and companies that inhibits higher spending or higher prices. Japan’s example offers other countries an unsettling vision of their possible future. “We’re essentially at the Japanese place,” Summers told Bloomberg Television on March 12. “That’s a place that’s very hard to get out of.”
(my note: the future for all developed countries is Japan)
What's often missed in this analysis is population. Interest rates are tightly coupled to population growth and even with negative interest rates, a country needs to see Japan-scale population decline to risk Japanification.
The virus has accelerated EU population decline and exacerbated the North/South fertility divide. It's natural to think that as the long-term outlook for the virus worsens (over the next several years), this would have a non-negligible effect on interest rates. https://www.reuters.com/article/us-health-coronavirus-eu-bir...
I'm a bit of a layman when it comes to financial stuff like this. Is there any place I can go to really understand what this headline actually means and what the implications are?
And the implication is that bond markets don't expect our current inflation to last very long and that growth will also likely be below par for a long time.
I am curious if we're entering a period where western governments must run deficits and central banks must purchase said debt at sub zero interest rates to keep the economy running.
In principal this could occur if there were large capital “sinks” in the economy where paper money is being removed from circulation or it's velocity plummets. This could occur if for instance certain economic actors could acquire large cash flows that they then deposit into illiquid non productive assets.
E.g. Housing, universities, Large rent speaking corporations with offshore accounts, individuals with the same.
If I remember correctly, the bonds may only be sold by the government to a fixed list of banks and those banks can then sell them to the ECB or the general public.
The level of indirection serves no practical purpose but is ideologically justified with the argument that banks are more likely to consider the market when deciding whether to buy the bonds or not even though they can just sell to the ECB without any losses.
Globally diversified bond funds do. Such as the etf vgro.to
I don’t understand the benefit of an individual buying such a bond when not forced to. Holding cash seems better than unless you think rates will go even more negative!
I see lots of comments like this floating around the internet, and while there's nothing wrong with learning, it's a bit silly to ask a question like this.
You don't know anything about the bond market, so what is an article entirely about bonds going to do for you? A better starting point would be to find out what a bond is in the first place. I'm sure there's plenty of literature available.
It gives me the same vibe as asking 'How do I build X in C++? I don't know how to program' instead of 'How do I learn to program C++?'
So these officials were allowed to make decisions under the political pressures of the governments that named them. Their supposed independence will be used
by governments to excuse themselves from their responsibilities.
Its the usual trick of naming a commission
with selected experts to get the recommendation you want. Then you argue you are just implementing the
recommendation of the 'independent' commission.
The answer probably is that despite all the data and expertise, central banks know less than your average hedge funds or economics think-thank. These decisions were done
by driving blind.
I found this analysis unusually sober and
interesting (for JP Morgan work...):
"Entering uncharted waters: Understanding negative bond yields"
Some interesting bits:
-------------------------------
"Fixed income markets have entered uncharted waters, with over USD 17trillion of debt trading with a negative yield."
"The Handbook of Fixed Income Securities by Frank Fabozzi, widely considered to be one of the most trusted resources for bond investing, has no mention of negative yields in its 1,803 pages. And yet today, negative yields are pervasive around the developed world..."
"...Forced buyers are profit-agnostic: they are holding the bond for a reason other than making a profit.
One example of a forced buyer is a central bank buying bonds in order to achieve asset purchase targets.
In places like the eurozone and Japan, for instance, central banks own 21% and 48% of their own outstanding government debt..."
"Negative-yielding bonds overseas are weighing down yields in the U.S. However, without the adoption of NIRP by the Fed it is difficult, but not impossible, for bond yields in the U.S. to go into negative territory."
-------------------------------
Any analysis of what will happen next cannot be made based just on the Economics books sitting on your desk. For sure
would require a political, sociology and psychology expertise your average economist is probably not qualified for. Certainly not the ones at your average central bank.
The real fun will probably start if China and US tensions rise. The 10 year U.S. Treasury Yields was at 1.75% and its now at 1.15% and probably going now:
For all the high class jargon, interest rates are nothing but a game of hot potato, with the potato being bad credit to low growth corps. If people stopped pretending this is 4d chess, and call it like it is, maybe someday it could be fixed.
I do think that smart contract based finance on blockchain protocols is necessary to stabilize captialism as a whole / to have predictable cycles instead of longer cycles with worse crashes.
At least you cant change inflation on a whim there (aside from on chain governance votes, but at least those are transparent and done by holders)
[+] [-] aazaa|4 years ago|reply
This is a global phenomenon. Real 30-year yields are steeply negative in the US as well, with nominal yield at 1.85% and year-over-year CPI above 5%.
But it helps to zoom out. This is part of a multi-decade trend in ever lower 30-year yields stretching back to the Regan administration.
https://fred.stlouisfed.org/series/DGS30
I challenge anyone to find a channel that long and that persistent (except for possibly the CPI). Keep following and you make the prediction of nominal 30-year yields touching zero within 3 years.
Somebody is on the wrong side of this trade in a big way.
Those who say the inflationary spike is temporary and will mean revert are buying bonds with wild abandon because once you break zero, you can always go deeper negative. And as yields fall, bond prices rise.
Those who say we're on the road to permanent inflation and possibly more are looking for inflation hedges. The odd thing about this is that gold, the traditional inflation hedge has gone nowhere fast.
It's also possible that both sides are wrong and what will actually happen will be unlike anything that has come before in terms of the ferocity and diversity of forces at work and ultimate pain/suffering.
For right now, both extreme sides can point to data supporting their outlook. But for how long?
[+] [-] hogFeast|4 years ago|reply
The reason why European yields are so low is because financial institutions are forced to own govt bonds. That is it.
Europe is one of the only markets where you really see this, yields in the US could certainly move higher or lower but they trade at a rational level. In Europe, the price is just wrong (because no-one is doing the trade to be right or wrong, they are doing the trade because of regulations).
Also, making some kind of linear prediction for rates based on the drop over the last 40 years makes no sense. Rates are actually stationary, but the reason they have trended strongly over the past four decades is because of changes in inflation expectations and aging of society which has brought down the natural rate of interest significantly. Outside of this, the underlying properties of rates are stationary...the same as every other valuation measure.
[+] [-] cwkoss|4 years ago|reply
If Bitcoin didn't exist, I would probably own more gold.
[+] [-] UncleOxidant|4 years ago|reply
There's an old adage that equity traders are the short-bus riders and bond traders are riding the long bus. I tend to think there's something to this and thus I tend to think the bond traders are more likely to be right here.
> The odd thing about this is that gold, the traditional inflation hedge has gone nowhere fast.
It's going into real estate.
[+] [-] martincmartin|4 years ago|reply
year-over-year CPI is backward looking: it compares one year ago to today.
Treasury yields are forward looking: If I tie up money now, how much more will I get one year from now.
Last year was pretty unusual. People expect the next year to be different.
[+] [-] quickthrowman|4 years ago|reply
[+] [-] rightbyte|4 years ago|reply
My understanding is that banks get negative interest on deposits in the banking system over night from many European central banks. So if you pay say -0.x% on deposits then 1.85% over 30y is a bargain.
[+] [-] ren_engineer|4 years ago|reply
my guess would be people are putting that money into bitcoin
[+] [-] throw0101a|4 years ago|reply
Interest rates have been going down, at least in Western countries, with some gyrations, since 1310 AD:
* https://www.bankofengland.co.uk/working-paper/2020/eight-cen...
* https://www.visualcapitalist.com/the-history-of-interest-rat...
[+] [-] H8crilA|4 years ago|reply
This comes with a whole new approach to finance, such as infinite duration mortgages (you never pay them back). And they even have those with a floating interest rate, in case you would like to bet your entire net worth on the idea that rates will stay this low till you die (and till your children, who will inherit the house with the mortgage, die, and till their children ...). Brave new world.
[+] [-] belter|4 years ago|reply
(link in Portuguese) https://www.bportugal.pt/comunicado/instituicoes-obrigadas-r...
[+] [-] w4llstr33t|4 years ago|reply
[1] https://thepoorswiss.com/capital-gains-switzerland/ (mainly talks about stocks but applies to capital gains in general).
[+] [-] DasIch|4 years ago|reply
[+] [-] recursivedoubts|4 years ago|reply
a lovely job, and well done
[+] [-] paulpauper|4 years ago|reply
[+] [-] toomuchtodo|4 years ago|reply
See: Japan [1]
1. What is Japanification? It’s a term used by economists to describe a state of chronically anemic economic growth and feeble inflation or even deflation similar to the conditions faced by Japan since a giant real-estate bubble popped in the early 1990s. It’s used to convey the alarming prospect -- often discussed in Europe, which has staggered economically ever since the 2008 financial crisis -- of sluggishness so deep that it is extremely difficult to escape. Even after Japan’s central bank embraced two extraordinary forms of monetary stimulus -- negative interest rates and asset purchases worth more than the entire size of the world’s third-largest economy -- the country has yet to return to a positive growth cycle strong enough to generate 2% inflation after nearly three decades.
2. What is secular stagnation? It’s a term originally coined by the Harvard economist Alvin Hansen in the 1930s to describe the tendency of mature industrial economies to move toward instability in the absence of large amounts of public investment. It echoed the ideas laid out by John Maynard Keynes in his seminal 1936 treatise, “The General Theory of Employment, Interest and Money.” At the time, the global economy was mired in a deep depression, and theories like Keynes’s and Hansen’s offered an explanation and a prescription for the way out. In recent years, amid rock-bottom interest rates in the wake of the biggest global downturn since the 1930s, another Harvard economist -- former U.S. Treasury Secretary Lawrence Summers -- revived the phrase to capture basically the same idea.
3. Are they the same thing? Essentially, yes. Japanification can be seen as a subset of secular stagnation, with characteristics matching those that have specifically plagued Japan. The country’s rapidly aging and shrinking population has contributed to the slowdown of economic activity, and to a high saving-low investment environment despite ultra-low interest rates. The Bank of Japan also complains about a deflationary mindset that has taken hold of consumers and companies that inhibits higher spending or higher prices. Japan’s example offers other countries an unsettling vision of their possible future. “We’re essentially at the Japanese place,” Summers told Bloomberg Television on March 12. “That’s a place that’s very hard to get out of.”
(my note: the future for all developed countries is Japan)
[1] https://www.bloomberg.com/news/articles/2020-01-17/japanific...
[+] [-] nabla9|4 years ago|reply
Inflation is the only good thing in this. It's finally close to Euroarea target. Unfortunately it wild likely slow down within a 12 - 18 months again.
[+] [-] flerovium|4 years ago|reply
What's often missed in this analysis is population. Interest rates are tightly coupled to population growth and even with negative interest rates, a country needs to see Japan-scale population decline to risk Japanification.
The virus has accelerated EU population decline and exacerbated the North/South fertility divide. It's natural to think that as the long-term outlook for the virus worsens (over the next several years), this would have a non-negligible effect on interest rates. https://www.reuters.com/article/us-health-coronavirus-eu-bir...
[+] [-] frockington1|4 years ago|reply
[+] [-] bruce343434|4 years ago|reply
[+] [-] belter|4 years ago|reply
[+] [-] UncleOxidant|4 years ago|reply
[+] [-] leereeves|4 years ago|reply
> the European Central Bank’s statement that it had bought many more bonds in the last two months than the bloc’s top four countries sold.
Oh.
[+] [-] lumost|4 years ago|reply
In principal this could occur if there were large capital “sinks” in the economy where paper money is being removed from circulation or it's velocity plummets. This could occur if for instance certain economic actors could acquire large cash flows that they then deposit into illiquid non productive assets.
E.g. Housing, universities, Large rent speaking corporations with offshore accounts, individuals with the same.
[+] [-] selectodude|4 years ago|reply
[+] [-] hnbad|4 years ago|reply
The level of indirection serves no practical purpose but is ideologically justified with the argument that banks are more likely to consider the market when deciding whether to buy the bonds or not even though they can just sell to the ECB without any losses.
[+] [-] go_elmo|4 years ago|reply
[+] [-] acover|4 years ago|reply
I don’t understand the benefit of an individual buying such a bond when not forced to. Holding cash seems better than unless you think rates will go even more negative!
[+] [-] MichaelMoser123|4 years ago|reply
[+] [-] HWR_14|4 years ago|reply
[+] [-] ryanmarsh|4 years ago|reply
[+] [-] breakfastduck|4 years ago|reply
You don't know anything about the bond market, so what is an article entirely about bonds going to do for you? A better starting point would be to find out what a bond is in the first place. I'm sure there's plenty of literature available.
It gives me the same vibe as asking 'How do I build X in C++? I don't know how to program' instead of 'How do I learn to program C++?'
[+] [-] belter|4 years ago|reply
- We knew economics can give Nobel prizes even in the same year, to practitioners defending absolutely and completely opposite theories:
"Nobel prize-winning economists take disagreement to whole new level"
https://www.theguardian.com/business/2013/dec/10/nobel-prize... https://www.irishtimes.com/business/economy/and-the-nobel-pr...
- Many were also aware that: “The only function of economic forecasting is to make astrology look respectable” John Kenneth Galbraith
"Despite forecasters’ best efforts, growth is devilishly hard to predict"
https://www.economist.com/finance-and-economics/2016/01/09/a...
Or we could go less diplomatic :-)
"Joke about 364 Economists" https://youtu.be/XB1ciodyM1w
So these officials were allowed to make decisions under the political pressures of the governments that named them. Their supposed independence will be used by governments to excuse themselves from their responsibilities. Its the usual trick of naming a commission with selected experts to get the recommendation you want. Then you argue you are just implementing the recommendation of the 'independent' commission.
The answer probably is that despite all the data and expertise, central banks know less than your average hedge funds or economics think-thank. These decisions were done by driving blind.
I found this analysis unusually sober and interesting (for JP Morgan work...):
"Entering uncharted waters: Understanding negative bond yields"
https://am.jpmorgan.com/sg/en/asset-management/per/insights/...
Some interesting bits: -------------------------------
"Fixed income markets have entered uncharted waters, with over USD 17trillion of debt trading with a negative yield."
"The Handbook of Fixed Income Securities by Frank Fabozzi, widely considered to be one of the most trusted resources for bond investing, has no mention of negative yields in its 1,803 pages. And yet today, negative yields are pervasive around the developed world..."
"...Forced buyers are profit-agnostic: they are holding the bond for a reason other than making a profit. One example of a forced buyer is a central bank buying bonds in order to achieve asset purchase targets. In places like the eurozone and Japan, for instance, central banks own 21% and 48% of their own outstanding government debt..."
"Negative-yielding bonds overseas are weighing down yields in the U.S. However, without the adoption of NIRP by the Fed it is difficult, but not impossible, for bond yields in the U.S. to go into negative territory."
-------------------------------
Any analysis of what will happen next cannot be made based just on the Economics books sitting on your desk. For sure would require a political, sociology and psychology expertise your average economist is probably not qualified for. Certainly not the ones at your average central bank.
The real fun will probably start if China and US tensions rise. The 10 year U.S. Treasury Yields was at 1.75% and its now at 1.15% and probably going now:
"10-year Treasury yield drops to 1.15%..." https://www.cnbc.com/2021/08/02/us-bonds-treasury-yields-ris...
Hint to Economy academics. Predict US negative interest rates now! There is a Nobel prize somewhere waiting for you.
[+] [-] croes|4 years ago|reply
It's just the Nobel Memorial Prize, just another bankster trick to sound legitimate.
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] throw0101a|4 years ago|reply
* https://www.investing.com/rates-bonds/germany-government-bon...
They have the rates of most countries if you poke around.
[+] [-] belter|4 years ago|reply
I recommend also for general stats:
https://tradingeconomics.com/
The 10 year German bond is here:
https://tradingeconomics.com/germany/government-bond-yield
[+] [-] andi999|4 years ago|reply
[+] [-] DasIch|4 years ago|reply
[+] [-] AndrewBissell|4 years ago|reply
[+] [-] nabla9|4 years ago|reply
[+] [-] IceHegel|4 years ago|reply
Unscientifically, it feels like low rates reflect highly diminished hopes for the future. F
[+] [-] steve76|4 years ago|reply
[deleted]
[+] [-] funemployed|4 years ago|reply
[+] [-] thih9|4 years ago|reply
[+] [-] alpineidyll3|4 years ago|reply
[+] [-] domano|4 years ago|reply
At least you cant change inflation on a whim there (aside from on chain governance votes, but at least those are transparent and done by holders)
[+] [-] pjc50|4 years ago|reply
[+] [-] te_chris|4 years ago|reply