But again, this is not true. As the FT again reports, the stock of negative-yielding bonds in the world is growing again, and has now reached US$16trn, only $2trn short of its peak. All German state debt now trades at negative yields. Japan is back in negative rates for some of its debt, and so too are France, Spain, Italy and even Greece with regard to their shorter-dated debt. Those buying this debt know they will make a loss from doing so, and buy it nonetheless.
Governments – or their central banks – own a very large portion of those bonds. It’s not, therefore, a market price – reasoning from a manipulated price is an error.
Plus, of course, these are nominal interest rates. It is real interest rates that matter. And thinking that we’re anywhere near a peak of bonds carrying negative real interest rates is to ignore most of the past century. For if real interest rates had been positive over the past century then holders of gilts now would have the same real value they did when they bought them in 1921. Which is something rather famously not so – as the P³ reminds us from time to time those debt burdens were inflated away, weren’t they?
Well the deadbeats reason they can carry on selling debt to their market maker until kingdom come.
And to think all of this can be traced back to Greenspan not wanting a little recession on his watch.
I don’t fully understand it but I think I know enough to trust my gut feeling that this is part of the cause and isn’t good:
This is the detail of the point I make, yes.
Presumably, they’re buying older debt, with pre-2008 coupons, may be even pre-1998 coupons. Probably not much time left on those until maturity.
Real returns on UK gilts have been positive over the very long term: +2.0% per year on average since 1900 (and by more since 1921, after WW1 had been very painful for investors).
While yes inflation did destroy the real value of fixed nominal amounts, on average the coupons on gilts were sufficient to give investors a positive total real return.
This doesn’t invalidate your point about price manipulation today, of course.
You have me thinking of the price of wind generated electricity.
I am neither an economist nor a historian, but I think I’m able to point out a thing or two that might have upset the Balance of All Things here and there when it comes to “economy” .