Treasuries trend reversal ?

Discussion in 'Economics' started by bearelite, Sep 2, 2011.

  1. bearelite


    Hi everybody,

    enclosed u see a chart showing the >34 years super-bull market of the generic 1st futures on 30-yrs US Treasuries (underlying with maturity >15years and non callable form another 15 years after the delivery month).

    QUESTION: anybody knows where I can find a chart or database showing the Japanese equivalent ?

    I want to have a better feeling on the outlook for banks (and insurance companies), especially in Europe. Your views and comments on this subject are welcome.

    I believe that after facing a Real Estate driven crisis banks might have to cope with a bond driven crisis, for the reasons I list below.
    However the bond market might take a long long time before reversing a super bull trend, thus my curiosity about the Japanese government bond market.

    I reason that in 2008 banks got under pressure because of the following sequence of events:
    * RE lost momentum (similar to Japan 1988) which led to -->
    * RE and of RE-related securities depreciated which led to -->
    * reduced banks' willingness to lend -->
    * reduced household consumption, corporate investments -->
    * reduced corporate and household's cash flows to service borrowing's costs and principal repayment -->
    * reduced banks' willingness to lend and so on

    This vicious circle was stopped, at least temporarily, by states interventions (QEs, banks bailouts etc..)

    However another vic. circle was likely started:
    * governments borrowing more-->
    * gov debt stock rising -->
    * rising risk of higher future taxation -->
    * higher risk of default

    Higher future taxation can of course depress corporate and household's future cash flows, which leads households and corporate to save more now, which in turn tends to reduce current economic activity and to restart at least partially the first negative cycle.
    As a consequence more state intervention might be "needed" with leads to even more borrowing and so on.

    As the higher taxation solution can make the problem bigger rather than solve it is not unreasonable to assume that the gov. debt problem could be solved also through partial government default and or inflation.
    Both default and inflation can make considerable (huge) damage to banks' and insurance balance sheets, due to their big holdings in treasuries.

    (Note that the Basel III capital adequacy criteria is devised to have banks stuffed to their neck with gov bonds)

    Thus banks and insurance with no exposure to gov bonds (most european, us and japanese) or with exposures at least hedged against inflation would be better than others.

    Does it make sense ?
    (contrarian views and arguments are most welcome)
  2. bearelite


    thank you Martinghoul