US at the Top of the Heap: Global 10-Year Bond Yield Comparison

Mish

In a global comparison of 10-year government bonds, three countries have negative-yields and France is on the cusp.

The chart is courtesy of Chris Puplava at Financial Sense following an request by me. The data is from Bloomberg.

10-Year Yield Comparison

  1. US: 2.05%
  2. Canada: 1.50%
  3. UK: 0.83%
  4. France: 0.02%
  5. Japan: -0.14%
  6. Germany: -0.30%
  7. Switzerland: -0.53%

100-Year Bond Yield Madness

I failed to ask about Austria.

Please note a 100-Year Austrian Bond Yields 1.2%.

If you needed any more proof that the world of fixed income has gone mad in the rabid hunt for yield, look no further than the Republic of Austria. If you liked its 100-year debt issued two years ago with a 2.1% return, how about settling for the same maturity for 1.2% now? Yes, you read that right: A 100-year bond yielding about 1.2%.

If you wanted to buy any of those 2.1% 2117 Austria bonds right now, you’d have to pay 60% more than their issue price; they’ve been a great success.

Got that? If you bought 2117 bonds two years ago yielding 2.1%, you are now sitting on a 60% gain.

Flattest Curve in World History?

A quick check shows that Austria's 10-year bond yields -0.02%

Investors get just over 1 basis point per year over the course of 100% years.

Good Reasons?!

Axios attempts to rationalize negative-yield bonds in the Resurgence of Negative-Yielding Debt.

The big picture: The benchmark 10-year bond yield is negative in Germany, the Netherlands, Switzerland and Japan; it's also this close to going negative in France. Even Greece has seen its 10-year bond yield fall to just 2.4%, an all-time low.

Be smart: You'll see a lot of chatter about how the investors in these bonds would get a better return were they to just stash cash under a mattress. Ignore that chatter. If you're an institutional investor managing trillions of dollars in assets, you can't convert that money into cash, and while a bank will probably pay you 0% for that money, you still end up taking significant counterparty risk. Bonds have negative yields for good reason.

Negative Yields Logically Impossible

In the real world negative-yield bonds are impossible. No one would prefer a dollar ten year from now to a dollar today.

Bond yields are negative only via direct, constant manipulation by central banks for no good reason at all.

In fact, negative yields hurt bank profits and savers as well.

I suspect but cannot prove, a negative yield derivatives mess is partially responsible for the collapse of Deutsche Bank.

Regardless, whereas the Fed bailed out US banks by paying interest on excess reserves, the ECB charged banks interest on excess reserves (hoping to spur lending) but it didn't, and won't.

I do not agree with Fed-sponsored bank bailouts, but the ECB policy is pure madness.

Mike "Mish" Shedlock

Comments (40)
No. 1-14
caradoc-again
caradoc-again

"ECB charged banks interest on excess reserves (hoping to spur lending) but it didn't, and won't."

Not sure how it works but it may have encouraged the lending to Turkey and South America that will come back and bite.

They forgot;

  1. To lend there needs be borrowing demand - either for business investment or consumption. Consumption being a spur to business investment and one thing they are fighting on EU consumption has been demographics, poor household formation due to high youth unemployment & fear. Negative rates can help push up savings vs consumption as an aging population becomes fearful of even less return on their cash post retitement.

Where have they encourage demand? Not so much in the behemoth that is Germany and very financially repressed. If not Germany where else can manage it to a degree to make a difference?

  1. Borrowing demand is often strongest in the riskiest places and that's where banks have looked to achieve any yield at all - future chickens to come home to roost.

Not to mention zombie corporations only just covering interest and on life support ready to add to the NPL heap if rates move up.

Walking a tight-rope.

Casual_Observer
Casual_Observer

The only reason US rates arent near 0 or negative is because treasuries are the backstop for the world. It is also why markets dont care what debt to GDP of the US is. Make no mistake being the defacto global reserve currency is why the US is where it is.

Stuki
Stuki

"Bonds have negative yields for good reason."

Perhaps for good Political reason. The biggest gun in the room promising to rob, kill and burn everyone else before he allows himself to lose face, come what may, can make darned near any economic irrationality appear rational.

But there are simply no good economic reasons for bonds to ever have negative yields. And, over time, economics does trump politics. Rule by Idiots, can make idiocy pay off short term, but that's also all it can do.

JonSellers
JonSellers

I would happily buy bonds at a negative yield if I thought every other investment would have worse results and I couldn't turn my wealth into cash. Maybe they know something we don't.

ZZR600
ZZR600

The cost of storing gold is 0.12% p.a. for a retail investor, I presume large quantities will results in an even lower storage fee. Therefore, storing gold is now less expensive than owning bonds in some cases. $1T is ~22,675 tons of gold, or a cube of about 10.5 x 10.5 x 10.5m in size. There must be many vaults that can accommodate this volume

Prig
Prig

Mish

This is a great blog but you constantly make an important error in asserting that the central banks don't know what they're doing. That's because you're too generous regarding their motives - you think their intent is to help the economy, but it's not.

Everything becomes clear when you see that central banks are the counterfeiting branch of the big investment bankers ('banksters'). The banksters are the hidden owners of the central banks - they created and control them. They print money and basically loan it to themselves, stealing the value of all the fiat currencies - and particularly the dollar, of course. It's in the banksters interest not to have to pay for the money they print, so they drive long term rates to zero (and lower! with negative interest rates they get paid to steal!). Similarly, there is no empirical evidence that the economy works best with 2% inflation, but the higher the allowable inflation rate, the more the banksters can steal. That's why, in the 1980s, they had their political henchmen in the US change the way inflation is measured (on Shadowstats, John Williams shows that if you use the previous metric, inflation is more like 4 - 6%. Greenspan was a big advocate of the change - he sold his free-market soul to become a tool of these criminals).

We don't see the actual inflation rate for a number of reasons, one being the arrangement with the Saudis to sell their oil in dollars; the more produced goods that are sold in dollars, the lower the perceived inflation rate. The biggest risk to a counterfeiter is that their fiat money will no longer be accepted. So, the US military has effectively become the 'muscle' for the banksters (they largely control the politicians who appoint the generals). They get rid of those (Qaddafi, Hussien) who propose to trade in currencies other than the dollar, or are aligned with such a goal (Iran, Syria). Russia and China recognize the theft that is being perpetrated and are publicly expressing their intent to move to new trading vehicles, so they will have to go. But it's too big a task to take on both at the same time. Russia will be first - Putin's regime is now marked for removal. That's why he's being demonized (the banksters control the mainstream media). A terrible war with Russia is coming - get ready for a huge, false flag event to justify it. They'll continue to try to get rid of Trump because he's not in their circle; he talks peace and can't be counted on to rabidly pursue the banksters' agenda.

We live in a medieval world with sociopathic bankers and war-mongering industrialists as the new royalty. Unfortunately, they're more clever than the old royalty which made the mistake of parading their wealth and power. Don't give them the free pass of ascribing ignorance to them; they are evil and smart.

leicestersq
leicestersq

I wonder about this madness. Can central banks achieve this outcome on their own?

The only 2 reasons I can think of for buying a negative yield bond are,

  1. The cost of keeping cash makes the return on holding that cash less over time than a negative yielding bond.

  2. There are forced buyers in the market.

of the above 2) is the more interesting one. I suspect that due to laws and regulations, someone has to buy bonds irrespective of their price. I cant see how we could have the yields we do unless there is a massive amount of forced buying somewhere.

Webej
Webej

Dear Mish. Why would American treasuries yield more (less demand) in view of the fact that they are the rock bottom "high-powered" money supporting the whole global fiat scheme? Supposedly that is where everybody hides in times of danger, and when things get nasty, it is dollar swaps that are needed to alleviate the liquidity shortages.

Is it because the ECB and the BoJ are inserting even more artificial bond demand than the Fed? Do Central Banks really control interest rates, or do they follow the market in a sort of monetary kabuki theatre? Ultimately high bond demand seems to suggest that there is nothing better to do with your money (spend or invest)? Or is it regulatory demands on pension fund and insurance companies and banks that force them to own more and more bonds? Banks need it to meet capital requirements, and pension/insurance fund can never have enough money to meet future liabilities if real interest rates are negative.

Zero interest shafts savers, but it also limits the earning potential of banks which are supposedly profiting at the expense of the savers. More questions than answers, but I have yet to read something that dispels the confusion generated by all the comforting shibboleths common to financial commentary.

RonJ
RonJ

"Negative Yields Logically Impossible"

Logic doesn't seem to apply anymore. Rates are lower than any time in 5,000 years- the beginning of civilization. The meter is on TILT.

CautiousObserver
CautiousObserver

@leicestersq: I can think of a couple more reasons for negative yields on government bonds:

  1. Those buying bonds can borrow at a more negative rate than the bonds pay. (CB's are lending to primary dealers at a more negative rate that government bonds pay.) In effect, this serves as a means of paying the banks to inject printed money into an economy via government spending.

  2. Yields are falling more quickly than bonds are maturing, and speculators want the capital gains. As Mish pointed out, someone who purchased the 100 year 2.1% Austrian bond in 2017 has a 60% capital gain if they sell into the market today. Looking at Mish's chart, "Global 10-Year Bond Yield Comparison," the downward trend in yields has been a very consistent winning long term bet for the last 30 years. It will all blow up at some point, but not tomorrow.

Carlos_
Carlos_

@Mish I would expect money to move into gold a lot more when you have negative interest. While gold has rally it has not exploded on the upside. Why

abend237-04
abend237-04

I think it's purely a mattress stuffing alternative for people at this point, and a sad commentary on how bad central banks can screw up even the most prudent investor's efforts to manage capital by their continuous, random bubble-blowing. Our own Fed is at the top of the list.

Mish
Mish

Editor

It's important to note that gold has skyrocketed in many currencies. It is at or near an all-time high in Australian dollars.

It is doing well. The dollar is up because the Euro is a basket case and the US has higher interest rates.

WildBull
WildBull

Hi Mish, On a different subject, you were complaining about Google Ads not blocking obnoxious advertising practices on your site. Perhaps it is because your political leanings are double plus un-good. Have your read the article in your right sidebar?

Insider: Google “is bent on never letting somebody like Donald Trump come to power again.”

I'm looking into ways to de-google my life.

Best Regards


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