'Is the developed world turning Japanese?'

TURNING JAPANESE

Mike Riddell, member of the M&G bond team, explains why the fixed income markets are pricing in a ‘grim' Japanese-style scenario.

There is only one explanation for why two-year US Treasury yields broke below 0.5% on Friday (an all time low), or why 10-year government bond yields in Germany and the US are currently 2.5% and 2.9% respectively. Or, for that matter, why German 30-year bunds are now at just 3.2%. The bond markets clearly think there is a very real and increasing risk that the developed countries are going to end up looking like Japan. James Bullard of the Federal Reserve made this point in a recent academic paper, where he argued there is a possibility that "the US economy may become enmeshed in a Ja...