Bond Yields

Anonymous1987

Could someone give a brief explanation why a country such as Japan with a net debt/GDP ratio of 189.3%, second highest in the world, can still obtain yields of 1.2% on its bonds in comparison to countries such as the US, UK and Germany with debt/GDP ratios of 52.9%, 68.1% and 72.1% respectively must pay yields of 2.8%, 3.2% and 2.6%?

mono627

Anonymous1987 wrote: »

Could someone give a brief explanation why a country such as Japan with a net debt/GDP ratio of 189.3%, second highest in the world, can still obtain yields of 1.2% on its bonds in comparison to countries such as the US, UK and Germany with debt/GDP ratios of 52.9%, 68.1% and 72.1% respectively must pay yields of 2.8%, 3.2% and 2.6%?

I asked this in a lecture the other day and the answer I was given was something along the lines that Japan is in a long term deflationary trend (think the deflation figure was around 1.2% but I could be wrong), so the real yield is closer to 2.5%.

Even this, is still pretty low comparatively. I could hazard a guess that it's something to do with the Yen being pretty strong at the moment but I'm not sure.

noodler

Well, for start you could argue that the markets don't always react with 100% rationality.

I'd also mention the bad publicity Anglo, IMF, the bank guarantees etc has given the country even without gettin ginto the technical nitty gritty.

Also, not sure what the tax revenues in Japan are like, but it probably makes paying off that debt easier than it would be for us.

Their economy is also more varied than ours.

silverharp

Japan have had a tradition of funding their deficits interanally, their public have being saving for decades in their postal type banks who then buy gov. bonds. I saw something a while back that savers had started drawing down their savings for consumption. In such a case rates would begin to rise.