Japan’s 15-year sovereign bonds sell for negative rates


Is it any wonder that the Bank of Tokyo Mitsubishi, Japan’s largest bank, is looking to hand back its sovereign debt primary trading licence? The latest Japanese 15-year bond auction hit -0.004%. The 10 year bond is already trading at -0.14%

Once again printed money is buying MoF debt and other participants wanting to seek yield must go further and further out the curve which then causes enhanced risk on the duration which we spoke of this morning.

Negative interest rates were first suggested at the end of the 19th century by Silvio Gesell, a Prussian economist and short-lived Bavarian Finance minister. Gesell argued that a stamp tax or ‘negative interest was necessary to prevent people from hoarding currency in times of financial stress.’ With the GFC, Gesell’s work has taken on increased relevance, gaining new converts, advocating some type of ‘stamp tax’ to encourage lending, spending and an increase in the velocity of money.

Well the reality is banks remain reluctant to lend, people are reluctant to spend and the velocity of money continues to decline…

Here are 7 things to ponder;

  • A recent US Federal Reserve survey found that 47% of Americans couldn’t raise $400 in emergency cash were the need to arise.
  • A bank survey in Australia showed 50% of people wouldn’t be able to meet their financial obligations if unemployed for more than 3 months.
  • 60% of ETF purchases in Japan and c. 100% of sovereign bond purchases are bought by the Bank of Japan which now owns 38% of outstanding government debt.  Japan’s move to negative rates caused run on sales of mini-vaults as people looked to store their own cash.
  • M2/M3 money velocity has hit all time lows in the US, ECB, Australia, China & Japan.
  • Italian banks non performing loans (NPLs) are approaching 20% and as high as 50% in the south of the country. The ECB is breaching their own covenants to hide the mess.
  • Over 25% of those in the EU live below the poverty line and youth unemployment is c.25% with long term unemployment now 50%. In Greece those numbers are 36%, 58% and 72%.
  • China’s industrial sector among others shows clear signs of recording sales without much hope of being paid with receivables ballooning in some cases leaping to over 5 years of reported revenue pointing to a sharp uptick in corporate debt insolvency & NPLs to follow.

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