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House Price Crash Forum
spyguy

Uk Bond Yields *ought* To Be 12%

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While various reasons for the old reliable demographic model breaking down are cited, I feel that the most important one is not listed. Falling populations lead to economic contraction and economic contraction leads in the long run to low or negative yields. These falling yields could manifest as inflation above the interest rate, or could manifest as low interest rates and low inflation.

The mistake is too look at past recessions when investors were protected against falling yields by central bank action to maintain real interest rates well above the natural rate as a 'price stabilisation' policy. This worked for only so long as that protection money could be extracted from the working population, a facility which is now closed since it was this policy of raising rates in recessions that has created the debt overhand and inequality we now see everywhere. There's no gas left in the tank for this particular boondoggle any more.

Put another way, the mistake is to assume bond-holders always get protected against negative real rates. As we now now, they don't!

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