‘Disastrous’ German bond auction

23rd November 2011

If one looks at long-term bond yields at this time then the world is divided into have and have-nots. Or to be more precise countries that are perceived to be safe havens and countries that are either in crisis or in danger of being sucked into it. One clear feature of this is that we find little or no distinction in comparing national debt levels and fiscal/budget deficit levels as whilst they are associated with higher yields some countries have problems in this area and yet still have low bond yields.

For example Japan has a gross national debt which will soon be some 250% of its Gross Domestic Product yet it has a ten-year bond yield of 0.97% whereas Greece has a ratio heading towards 192% but has a ten-year bond yield of 28.8% or nearly 30 times higher. If you plug that into a computer you are in danger of it behaving like Hal in the film 2001!

Even if we look at the fiscal deficit (the amount by which public expenditures exceed revenues) we see that Japan in 2011 is likely to have one of 10.5% of its GDP whereas in spite of the continual upward revisions Greece looks likely to have one of 9 to 9.5%. And the reconstruction efforts after the tsunami that hit her in the spring are likely to put upward pressure on Japan’s fiscal deficit going forwards and she now expects to have one of at least 9% in 2012.

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