But why the shift in rates, representing a significant fall in bond prices? Some are suggesting that this is a simple market reaction: bonds have been overpriced and an adjustment is necessary. This, however, makes little sense. The market is also illiquid at present precisely because there appears to be a shortage of available government bonds to meet investor demand. When it is reported that the largest 50 US companies holding cash have, between them, more than $1 trillion on deposit because their collected entrepreneurial expertise can find no use for it it is unsurprising that there is a significant demand for bonds, which has in itself created the negative interest-rate phenomenon. If anything the price of bonds should still be rising precisely because there are not enough of them: the paradox that governments are not running big enough deficits to meet market demand for their debt is one we should not miss. How long these contradictory positions can last is hard to tell but the implication is that instability is possible unless there are changes in policy, to which point I return below.
Do leaqve aside the point that of course that $1 trillion in corporate money is in fact invested in government bonds. That’s where those companies are parking it all.
Marvel, instead, at the logic.
Government bonds prices are falling. This proves that governments aren’t issuing enough bonds, there must be a shortage of them.