An interesting editorial article in the Daily Telegraph writes that the record low level of government bond yields, in both the UK and US, are either indicative of an expecatation of a long period of stagnation and Deflation (i.e. like Japan’s “lost decade”) or are infact indicative of market distortions caused by the government’s ‘ultra easy monetary policy and the demands being put by regulators on banks to hold “riskless” assets.’
Read the full article here: Why government bond markets have become the latest mad and bad asset bubble
Foreign government and individual investors, mainly government, are buying USA and UK SHORT TO MEDIUM term debt at stupidly low levels for two reasons:
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It is what they have always done. They are looking to store money and the best way historically has been to use these debts.
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The majority of foreign nations that hold USA and UK deb\ts sill follow the Mercantilist tradition that they used to develop their economies. So they place far too much emphasis on exports and much less on imports. And to keep the exports flowing they have to literally hurt their own citizens by buying this increasinly worthless paper.
The bubble as I see it is that a Mercantilist strategedy is only good for limited time frames. Eventually even the most stubborn governments: The ones of China and Japan for example, will give up on this and in fact they are doing so. India was first with its purchase of several tons of gold. Japan and China that are much more intertwined with the USA will start switching to gold eventually.
It is extremely risky to be in bonds and extremely risky to not be in precious metals and/or natural resources. See the thread i posted today: Gold Revaluation