Some fixed-income analysts are predicting US 10yr yields could fall to 0.995% by Sep

The financial world “seems upside down”, writes Michael Heise, chief economist at Allianz, in Wednesday’s FT, noting that the spectre of inflation haunts countless TV and radio debates while gold and other precious metals are the flavour of the moment – and yet, he notes (our emphasis):

… at the same time, yields on the main bond markets seem to be falling into an abyss, as if inflation had been nailed into its coffin for the foreseeable future. Yields on German government bonds have been flirting with all-time lows in early summer, and US long-term interest rates are still hovering at an exceptionally low level.

In Japan, where the world “inflation” is barely in the vocab, the markets are positively “screaming deflation” as FT Alphaville noted earlier, with the yield on 10-year Japanese government bonds reaching 0.995 per cent on Wednesday – the first dip below the key resistance level of 1 per cent since August 2003.

Indeed, notes Hiese:

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

Call it “justified” or a “seven-year itch” – back to the yields of 2003 – but there are some extreme trends taking hold in Japan. Take currency markets for example, where the yen has reached its strongest level against the dollar since 1995 in recent months, hitting Y85.52 on Wednesday. Some fixed-income analysts meanwhile are predicting that 10-year yields could fall to 0.95 per cent by September.

The yen’s strength against the dollar partly reflects concern about US economic growth, following weaker-than-expected data this week on consumer spending, home sales and factory orders.

...

http://ftalphaville.ft.com/blog/2010/08/04/305921/a-yen-for-bonds-in-upside-down-financial-world/

 

If the bond market is ignoring inflation warnings, then the stock market is ignoring deflation warnings. You start to see this kind of talk at major tops at bottoms. I will refer for the millionth time to this article from early April from the NYT written just as long bond yields were about to begin falling by 100 basis points. The title says it alll, but there are also some great quotes inside ...

Interest Rates Have Nowhere to Go but Up

http://www.nytimes.com/2010/04/11/business/economy/11rates.html?_r=1&src=me&ref=business

Am I calling for a secular bear market in bonds? No. But a major move upward in yields is coming soon. I believe the US 10 year hit 1.99% on Dec 31st 2008. Amidst continuing carnage in the stock market, its yield was over 3% a few months later.

 

Please remove US from title and replace with JP.

 

And 0.95%.

This article reinforces the fact that people need not worry about inflation, but should be more concerned with deflation.

 

Nice headline... If 10y notes go to 0.995% yield in Sep, it will definitely be time for guns, ammo and canned soup.

 

What we need is a doom-dex. 1/3 lead, 1/3 wheat, beans and 1/3 gold.

 

Yep your correct.

In JAPAN in 15 years they went from 0.25 to 0.5

a quarter of a per cent hike in 15 years.

thats the reality of this mess.

they never will go up.

 

No guns, no ammo, no canned soup - buy land. Especially cheap in Argentina. This is all you need :

 

Interesting times we live in. It may be a sideways market in stocks but its a bull market in bonds. IMO it would take a major unexpected corporate default to drive 10 year yields that low that soon, causing a flight to safety out of corporate bonds and stocks.