Sunday, 11 January 2009
30-year yields have risen by more 50 basis points since before Christmas. I had mentioned in my previous post that 2.5% looked unsustainably low. Offline many of you have commented to me that even lower rates have been sustainable in Japan where 10-year JGBs have been yielding sub-2% for over a decade. The US is not Japan. Japan did not have a twin deficit - a critical differentiator. Japan could finance its budget deficit from its large trade surplus. Also supporting your own bond market is easy when you are generating the cash needed from exports. The US is entirely reliant on the sustained global "mass delusion" that the US government is the safest place to park your funds when there is trouble everywhere. The irony is that if the US is successful in re-igniting its economy which in turn should help stabilise the crisis globally, then US bonds will become relatively less attractive. Particularly if US inflation is re-ignited with it.