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Is the Safe-Haven Government Bond Bubble Finally Bursting?

The Safe-haven government bond bubble did not pop, but Italy or Spain have become low yielders as well

Government bond yields under 10 years for safe-havens are close to zero. In April 2013, even 20 year bond yields are less than 3%, What can explain this bubble of the century?



Update for the year 2014:Bond Yields 2014

Update June 28, 2014: with 30 years, things have not change a lot:

German Bunds 30 yrs. 2.18% (vs. 2.45% in June 2013), UK Gilts 3.4% (vs. 3.4% in June 2013), US Treasuries 3.36% (vs.  3.48%), Japan JGB 1.69% (vs. 1.84%).

On the contrary all wealthy nations are becoming safe-havens: Italy 30 year 3.9% (vs. 5.04% in June 2013), Spain 3.9% (vs. 5.3%)

See on the next page PIMCO starting to sell bonds in August 2013, apparently too early….


Update June 20, 2013:

With the potential “tapering” by the Fed, things start to “normalize” again a bit.
German 30yrs: 2.46%, UK gilts 30 rs: 3.46%, US 30 rs: 3.48%, Japan 1.86%

Government Bond June 20

The Biggest Bubble of Century: Government Bond Yields

Update April 24, 2013: (now with 30 years instead 20 years !!)

German Bunds 30 yrs. 2.19%, UK Gilts 3.04%, US Treasuries 2.90%, Japan JGB 1.60%

20 year bond yields

Update February 23, 2013:

With the exception of Japan, yields of safe-haven countries are up 10-20% (see inflation as one explanation for higher yields) , while Italian ones are stable.

UK gilts 3.04% (despite recent downgrade), German Bunds 2.32%, Japan JGB 1.73% (still no sign of inflation or Japan bears), Switzerland 1.21%, Italy 4.43%


Update December 26, 2012:

UK gilts 2.77%, German Bunds 2.16%, Japan JGB 1.75%, Switzerland 1.00%, Italy 4.41%

Japanese JGB yields rise in line with Swiss ones, in response to potential higher inflation, but no signs of changes of default.


Update December 07, 2012

UK Gilts 2.68%, German Bunds 2.13%, Japan JGB 1.65%, Switzerland 0.87% and even Italy 4.59%.

Government bond yields are at record-low levels from an historical perspective.

Since 1960 Treasury Yield Chart

10 yr. US Treasury Yield Chart Since 1960


(click to expand)

Longterm chart US Treasuries

Government Bonds Real Yields 1970-2011

How can investors judge today how the global economy is going in 20 years?

There is too much fear around, there is too much money around that goes into unproductive safe-havens like government bonds. See the investor letter of Kyle Bass, CEO of one of the most famous hedge funds, Hayman Capitals.

One day, employees want also a piece of the cake (see PIMCO’s Bill Gross), they will not leave the profits just to the share holders. These employees will not only be Chinese workers, that will start being consumers. They will push up European and American inflation via the back-door of imported goods. Due to aging issues also European and Americans whose wages will rise. Germany is one of the protagonists of this tendency, nominal wages increased by 3% and more in the last two years.


Wage inflation and important sovereign defaults will come, aging and the smaller and smaller gap between established and developing countries will enforce it. It is a just a question of when. History shows that both wage inflation and the simple fear of sovereign defaults can lead to self-fulfilling prophecies.

Aren’t states allowed to default any more?

Spain defaulted on its debt six times in the eighteenth century, and seven times in the nineteenth century. At the time, a default was a lot easier than pressing out higher and higher taxes. Argentina has issues with its default still today


Disinflation in the Euro zone depresses bond yields everywhere

June 2014:

ECB Rates June 2014


By July 2013, government bond yields of European safe-havens have risen compared the rates of July 2012, but the ones of crisis countries decreased:

ECB Long-Term Interest Rates July 2013 Convergence Purposes

Click to expand, source ECB


The following was the data as of July 18th 2012, at the height of negative interest rates for safe-havens.

Government bond yields under 2%

Government bond yields under 2% (as of July 18th)


Links: Government Bonds on Financial Times and on Forexpros


See on the next page PIMCO starting the sell bonds in August 2013

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