maandag 9 januari 2012

Government Bond Yield Extremes

Today I found an interesting article on Bloomberg about 1 Year German government bond yields going under zero (see Figure 1).

It is amazing that people want to lend money to the German government while paying extra money (1% of their investment) a year from now. Thereby losing money with their investment.

I can think of only one reason for this and that is: "your money is not safe in the bank".

Why would someone not just put their savings in a bank which pays around 1,5 % yield a year. Instead they want to lose money by buying German government bonds. Exactly because your cash is not safe in your bank. At any time your bank will go bankrupt. I know Germany is a safe haven, but there are far better alternatives here like buying precious metals: gold and silver.

Figure 1:
1 year german government bond

The 1 year US government bond yield is really almost the same. Amazingly low yields with minimal return in an inflationary environment (see Figure 2).

Figure 2:
1 year US government bond

Completely the opposite is the 1 year Greece Government Bond Yield (see Figure 3), which is surging past a record 380 %, which basically means a default on their debt.

Figure 3:
1 year Greece government bond yield

It amazes me that people still buy these government bonds, knowing that the bond bull market is coming to its end.
US government bond yields have run a 30 year bull market (1980-2012). I think it's time for the market to start moving the money from government bonds to precious metals.

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