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Japan's Negative Interest Rates Are Even Crazier Than They Sound

Mar. 02, 2016 9:18 AM ETJGBS-OLD, JGBD, JGBL, JGBT, JGBB, RINF7 Comments
John Rubino profile picture
John Rubino

Yesterday, Japan's government borrowed money on terms that require the lenders to pay rather than receive interest for ten years. And not only was that bond issue snapped up, it was vastly oversubscribed. This raises a lot of questions, the chief being, "why would anyone voluntarily commit to something that's guaranteed to lose money for a decade?"

The short, obvious answer is that the world's central banks are creating so much excess cash that there seems to be nowhere else for it to go. The longer, but way more interesting and scary explanation is that capitalism as it used to function is over, and the result will be catastrophic.

Here's an overview of those Japanese bonds:

Japan Sells 10-Year Bonds at Negative Yield For the First Time

(Bloomberg) - The Japanese government got paid to borrow money for a decade for the first time, selling 2.2 trillion yen ($19.5 billion) of the debt at an average yield of minus 0.024 percent on Tuesday.

The sale drew bids for 3.2 times the amount of the securities offered, the first increase in demand since an auction in December, according to the Finance Ministry. Japanese government bonds of as long as five years in maturity sold at an average yield below zero for the first time last month, after the Bank of Japan pushed yields lower across the curve with the announcement of negative interest rates Jan. 29.

"Demand was stronger than expected," said Shuichi Ohsaki, chief rates strategist at Bank of America Merrill Lynch. "The outcome suggests there is ample demand before redemption of existing bonds in March."

The benchmark 10-year bond yield dropped as low as minus 0.075 percent after the auction, matching a record. Yields on 20-year debt sank to an unprecedented 0.46 percent, while those on 30-year securities declined to an all-time

This article was written by

John Rubino profile picture
John Rubino manages the financial website DollarCollapse.com. He is the co-author, with GoldMoney’s James Turk, of The Money Bubble (DollarCollapse Press, 2014) and The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a money market trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.

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