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The Biggest Bubble of the Century is Ending: Government Bond Yields

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 August 16, 2013:

So, 10-year Treasury yields have ended the day closer to 3 per cent. But not as close as they were at about 8:30am New York time.

Though the afternoon recovery may generate some relief for fixed-income investors, with the US labour market data improving, few will confidently predict that yields won’t head higher still this year.

Here are three charts (courtesy of Bank of America) that will give bond bears cheer and those who believe yields are near their peak some pause for thought.

1, The Federal Reserve really has been a huge buyer of bonds over the last three years (see chart one), which compares the central bank purchases with those of private investors.

2, Flows into mutual bond funds have been substantial since 2009, eclipsing flows into equity funds. That pattern is changing (see chart two).

3, It’s not just China that is a big foreign buyer of Treasuries. Brazil, Russia and India [and the SNB] have been, too, (see chart three) as central banks have recycled growing volumes of foreign-exchange reserves into Treasuries. With investment flows into emerging markets slowing, reserve growth and the need to buy Treasuries should too. (source FastFT)


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%.


Quick Starter for Government Bonds: Bloomberg Yields and Futures

Bloomberg Bonds
Internet Quickstart
1M3M1Y2Y5Y10Y15-30YYield curveInflation
yieldyieldyieldSwiss inflation
(BuBills, Schatz,
BOBL, Bund)
GermanyGerman CPI
yieldFrance CPI
yieldItaly CPI
yieldSpain CPI
UK (Gilts)yieldyieldyieldyield

United States
yieldJapanJapan CPI

The biggest bubble of the century: Government Bond Yields


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

Since 1960 Treasury Yield Chart

10 yr. Treasury Yield Chart Since 1960 - Click to enlarge


(click to expand)

Longterm chart US Treasuries


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.

One indicator of fear are the drawdowns in equity prices often caused by premature rallying of equity markets after money injections by central banks.


Equity market drawndowns accumulate after 2008

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 August 16, 2013: So, 10-year Treasury yields have ended the day closer to 3 per cent. But not as close as they … Continue reading » - Click to enlarge


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 (see Roggoff’s and Reinhard’s book below). here for Roggoff's Reinhard's book.

This double package of wage inflation and looming sovereign defaults, however, is far more explosive than just a single one of them.

Investors, including a global hedge fund with one of the biggest government bond holdings in the world, the Swiss National Bank, should be on alert. One day we might play the 1970 stagflation and the 2008 financial crisis at the same time.


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


More data

By December 8, 2012 the tendency to negative interest rates has even intensified. Swiss 20 years government bond yields are at a yield of 0.87%.

Swiss 20 yrs. December 7, 2012


The following was the data as of July 18th, at the height of negative interest rates. Still today yields of major safe-havens are similar.

Government bond yields under 2%

Government bond yields under 2% (as of July 18th) - Click to enlarge


The following table from Bloomberg shows central bank after inflation (real rates) compared the government bond yields and the CPI as of October 2012.

Global Bond Yields, End November 2012


The most recent data is available at the Economist :


Average 10 years Government bond yields provided by the ECB:


Government Bonds on Financial Times and on Forexpros

Marc Faber’s comments on the treasury bubble



Are you the author?
George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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