Tuesday, July 31, 2012
FW: 1(BN) U.S. Bonds Seen Mimicking Japan’s Lost Years: Chart of the
U.S. Bonds Seen Mimicking Japan's Lost Years: Chart of the Day
2012-07-31 10:00:00.1 GMT
By Michelle Jamrisko and Ilan Kolet
July 31 (Bloomberg) -- Declining U.S. bond yields are mimicking the path of Japan's securities during its "lost years" of sluggish growth, showing investors hold a dim view of the American economic outlook, according to Douglas Porter.
The CHART OF THE DAY shows the yield on the benchmark Treasury 10-year note since 2005 has closely tracked the first seven years of Japan's slow-growth period that started in 1990. That is a correlation central bankers should keep in mind when formulating policy, said Porter, deputy chief economist at BMO Capital Markets in Toronto.
"It's a tad unnerving," Porter said in an interview. U.S. rates have followed Japan's even as the Federal Reserve has been more successful than the Bank of Japan in fighting deflation, or a protracted drop in prices. "This could be a long-grinding episode where yields bounce around at low levels for an extended period of time," he said.
While there are plenty of differences between the two countries -- such as their rates of inflation, the aging of the population in Japan and the relative strength of U.S. financial institutions -- there are also similarities, said Porter. These include severe financial crises and protracted periods of weak growth that are difficult to shake off, he said.
If U.S. Treasuries were to continue following the trajectory of securities for the world's third-largest economy, the yield on the 10-year note over the next 15 years would decline to about 0.75 percent -- in line with the current level of Japan's 10-year bond.
The U.S. 10-year yield dropped to a record 1.3790 percent on July 25 amid concern that the European debt crisis is hampering economic growth, before posting gains on policy makers' pledges to support the euro. The yield will rise to 1.83 percent by year-end, based on forecasts in a Bloomberg News survey of financial companies, with the most recent projections given the heaviest weightings.
For Related News and Information:
News on the U.S. economy: NI USECO <GO>
World bond markets: WB <GO>
Bond yield forecasts: BYFC <GO>
Japan markets monitor: OTC JPY <GO>
Top credit market stories: TOP CM <GO>
Japan credit market stories: NI JNCREDIT <GO> Charts, graphs home page: CHART <GO>
--Editors: Carlos Torres, Christopher Wellisz
To contact the reporters on this story:
Michelle Jamrisko in Washington at +1-202-654-7304 or firstname.lastname@example.org; Ilan Kolet in Ottawa at +1-613-667-4806 or email@example.com
To contact the editors responsible for this story:
Christopher Wellisz at +1-202-624-1862 or firstname.lastname@example.org; Alex Tanzi at +1-202-624-1959 or email@example.com