Japan’s Bond Yields and Political Adds: Both Negative!

As I’m taking a brief departure from yesterday’s political commentary, I needed a gimmick to bridge the two concepts. Since they’ve both now gone negative, I found it!

Today, for the first time in history, the Japanese 10-year bond yields less than zero. Just slightly, but yes, it too now returns less principal – at maturity – to the investor when it matures. Ten years from now. Yes, you heard that right: 10 years from now.

It’s estimated that at present, more than 7 TRILLION dollars of government bonds have negative yields. Again, yes, you heard me right: $7,000,000,000,000. How is this possible?

Occam’s Razor is a simple problem-solving method. It suggests that the simplest possible solution is often correct. Applying that age-tested principle here suggests the simplest explanation is this: As demand clearly exceeds supply, two conditions must be co-existing right now. One, risk aversion. Investors, en mass, seek low- or no-risk investments right now. Two, there is a massive amount of capital in this bucket.

Which makes sense. Population trends in developed nations suggest an ever increasing average age. As investors age, they seek safer investments, as capital replication is difficult or impossible late in life.

Another conclusion must be this: Globally, investors feel long-term, high rates of inflation are a thing of the past. And this implications of this are even more fascinating.