Remember... we aren't on the Gold standard anymore, like we were prior to 1970s, so for the bond yields to be below 3% on the UK or US or German Long Bond today, is totally insane. Developed market government bond bubble...
The more debt there is, the lower rates have to be to transmit monetary policy via the interest rate mechanism and the lower the increments have to be to manage price inflation. Who would have thought of changing the Bank rate by just 25bp 20 odd years ago? And then also worry about tripping the entire economy into recession because of it.
Until the Minsky Moment...when a sudden fear of repayability can takeover and then rates rise and make the debts suddenly unpayable.
Rating agencies are key to this dance. Who thinks they are not in cahoots with certain investors?
Insane and people are feeling safe to be in these markets, too.
ReplyDeleteIt is not insane, it is entirely logical.
ReplyDeleteThe more debt there is, the lower rates have to be to transmit monetary policy via the interest rate mechanism and the lower the increments have to be to manage price inflation. Who would have thought of changing the Bank rate by just 25bp 20 odd years ago? And then also worry about tripping the entire economy into recession because of it.
Until the Minsky Moment...when a sudden fear of repayability can takeover and then rates rise and make the debts suddenly unpayable.
Rating agencies are key to this dance. Who thinks they are not in cahoots with certain investors?