Still Odd Man Out

30-year government bond yields.

Country Jan 6/15 Jan 2/15
Japan 1.12% 1.23%
Germany 1.17% 1.38%
USA 2.52% 2.70%

Long government bond yields have historically been driven by inflation expectations. Both Japan and Germany are wrestling with deflation, which goes a long way towards explaining such low yields. The US has yet to realize that it, too, will be in the same boat even though CPI-U has been falling since August. Ms Yellen pronounced this as due to the “transitory” fall in the price of energy. When the market realizes she is wrong about this, then expectations – and bond yields – are likely to fall into line.

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