Japan's biggest bond investors say Barack Obama has room to unleash a flood of Treasuries without driving up borrowing costs as he tackles the worst economy since World War II. The U.S. is starting to look like Japan in the 1990s, when the Bank of Japan struggled to revive growth as the combination of deflation and recessions stranded the nation in the so-called Lost Decade. Yields on Treasuries are falling as the government sells a record amount of debt to prop up the American economy. Two-year note yields have fallen to 1 percent, compared with 0.57 percent for Japanese government bonds of similar maturity. The gap last week touched the narrowest since 1992. "History repeats itself," said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., which manages the equivalent of $200 billion and invests on behalf of Japan's biggest bank. "Based on our experience in Japan, the same thing will happen in the U.S. The U.S. has more room to borrow." Bando bought Treasuries, as did Mizuho Asset Management Co., which oversees $41.9 billion and bet all year that inflation in the U.S. will turn into deflation, buoying government debt. JPMorgan Asset Management Japan Ltd., part of the largest U.S. lender, is buying Treasuries, speculating the Federal Reserve will purchase the securities to keep yields down and spur the economy, just as the Bank of Japan did a decade ago. Fed holdings of Treasuries on behalf of foreign central banks and other institutions rose 12 percent since September, compared with a 7.7 percent increase last quarter.
Japan's biggest bond investors say Barack Obama has room to unleash a flood of Treasuries without driving up borrowing costs as he tackles the worst economy since World War II.
The U.S. is starting to look like Japan in the 1990s, when the Bank of Japan struggled to revive growth as the combination of deflation and recessions stranded the nation in the so-called Lost Decade. Yields on Treasuries are falling as the government sells a record amount of debt to prop up the American economy. Two-year note yields have fallen to 1 percent, compared with 0.57 percent for Japanese government bonds of similar maturity. The gap last week touched the narrowest since 1992.
"History repeats itself," said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., which manages the equivalent of $200 billion and invests on behalf of Japan's biggest bank. "Based on our experience in Japan, the same thing will happen in the U.S. The U.S. has more room to borrow."
Bando bought Treasuries, as did Mizuho Asset Management Co., which oversees $41.9 billion and bet all year that inflation in the U.S. will turn into deflation, buoying government debt. JPMorgan Asset Management Japan Ltd., part of the largest U.S. lender, is buying Treasuries, speculating the Federal Reserve will purchase the securities to keep yields down and spur the economy, just as the Bank of Japan did a decade ago.
Fed holdings of Treasuries on behalf of foreign central banks and other institutions rose 12 percent since September, compared with a 7.7 percent increase last quarter.
This article seems to be using the phrase "Obama bonds" in a different sense than it was used here:
Japan economists call for 'Obama bonds' | Asia Times - Kosuke Takahashi (2008 November 19)
"The US will be forced to issue foreign currency-denominated US Treasures in its hour of need," said Mizuno [Kazuo, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan's largest publicly traded lender by assets]. "The US cannot finance its deficit by itself. The US financial system cannot survive without foreign investors. We will see 'Obama Bonds' in the future." <...>
Yields on two-year U.S. notes have fallen for five straight weeks and are down from this year's high of 3.11 percent in June. They may drop to 0.6 percent by mid-2009, JPMorgan Chase & Co. analysts led by Terry Belton and Srini Ramaswamy in New York said in a Nov. 28 report. The level is "not unreasonable" since yields in Japan were between 0.1 percent and 0.8 percent for three months after the central bank began its zero-rate policy in 1999, the analysts wrote. The Fed will cut its target overnight rate for loans between banks to zero by January from 1 percent now, the JPMorgan analysts said in their 2009 U.S. fixed-income outlook. London-based HSBC Holdings Plc and New York-based Citigroup Inc., which like JPMorgan are among the 17 primary dealers of U.S. government securities that trade with the Fed, also predict the rate will go to zero.
The level is "not unreasonable" since yields in Japan were between 0.1 percent and 0.8 percent for three months after the central bank began its zero-rate policy in 1999, the analysts wrote.
The Fed will cut its target overnight rate for loans between banks to zero by January from 1 percent now, the JPMorgan analysts said in their 2009 U.S. fixed-income outlook. London-based HSBC Holdings Plc and New York-based Citigroup Inc., which like JPMorgan are among the 17 primary dealers of U.S. government securities that trade with the Fed, also predict the rate will go to zero.
