Thursday, February 25, 2010

Moody's threatens to correct the anomaly of Japanese government bond yields



According to the WSJ, credit rating agency Moody's is saying that Japan's credit rating could be at risk if the government there doesn't reduce deficits in short order.

Most interesting is the mention of why Japan enjoys a total dislocation from reality in its borrowing rates:

At the same time, there are several factors weighing in Japan's favor, he said.
"Affordability for such a high level of debt comes from special characteristics, in particular, a deep and stable domestic funding base, captive savings in the postal savings system and other financial institutions, and a strong home bias among domestic investors."

That "deep and stable" domestic funding base comes by way of outright propaganda to buy government debt instead of park savings in higher yielding assets such as stocks.

As Kyle Bass of Hayman Capital put it, "Cultural forces spawned the generally accepted belief among Japanese citizens that it is their patriotic duty to lend their government money." He was referring to ads like the one below, which feature a Japanese celebrity imploring people to buy bonds.

“Government bonds are worth another look,” the Ministry of Finance says in its latest advertisement, which features a picture of 37-year-old Junko Kubo, a former anchor on Japan’s public broadcaster NHK. Individuals can buy government debt at local banks for as little as 10,000 yen, or about $106, according to the ads. The ministry is hawking the bonds on its Web site with the slogan, translated from Japanese, “Peace of mind. Piece of happiness.”





This is akin to the US Government using your tax dollars to put out advertisements telling you to BUY treasuries instead of invest in stocks, to support public employee salaries that you already pay with your taxes. Madness, but don't count it out.....


The current administration has started the ball rolling in this direction, with the suggestion that Americans might forced to own annuities in their tax-deferred savings accounts:


The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged.

It may start with annuities, but the holy grail for big-spendin' government would be forcing Americans to buy another "guaranteed income stream"......treasuries.

That entire Hayman piece is below. It's required reading for anyone interested in long term structural and even demographic imbalances...

Hay Man





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