Monday, August 9, 2010

Heise: Bond yields fall into abyss..

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 Japanese government bonds and the US Treasury or German Bund markets is obviously that Japan actually experienced deflation for a number of years, which of course justifies low long-term bond yields.

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