My Name Is Bond

12 January 2009 - My name is bond

According to Ambrose Evans-Pritchard of the Daily Telegraph the bond boom that fed the economic appetite for the past five years is going into reverse. This is because treasury bonds are now very expensive with a consequent drop in yields. 10 year US Treasuries have fallen to 2.4%, a level not seen even in the great depression. Yields in Japan are down to 1.3%, 3.0% in Germany, 3.1% in Britain, 3.3% in Chile, and 3.5% in France. The best place to be currently is Brazil at 5.6%. In such a scenario, why would the likes of China, Japan and the oil rich nations continue to amass foreign reserves? As this diary has noted before, the sovereign funds of these nations are shrinking fast and capital flight is discernible. Since August 2008, Russia has lost 27% of its reserves and China has lost $15bn. Japan is in trade deficit. All of this means, according to the article, that the US and European governments cannot rely on others to plug the big hole in their deficits, indeed, Asians are just as likely to be net sellers of bonds.

The principal dilemma is that quantitative easing has started, not least in the US. This could well mean that Mr Bond is less in demand. Bond investors beware.