All we can do is watch the 10 year bond yield grind lower and lower.

The entire world has bond mania as yields collapse at warp speed.

What the heck is going on? Basically there's a mammoth flow of cash towards safe havens. German, U.S., Finnish, Canadian, Australian bonds... yields are dropping everywhere.

One of the best interest rates strategists there is, is Nomura's George Goncalves, who has a great note about the entire market being "mesmerized" by Treasuries.

He does some great work here with the famous comparison of the U.S. rates path to Japan's famous rate collapse over the last few decades, and he says that moves like this are what happens when people just give up on an economy.

Read Goncalves here ...

We are big fans of regime comparison charts to find patterns in market movements. Figures 2 and 3 are two sets of periods where we overlay US rates versus the Japan experience in the 1990s and early noughties. We have written extensively (see link) that the US would enter a low rate environment similar to Japan, but the overall levels of rates would not replicate 1-for-1 because the US has positive inflation and positive population growth (among other things), whereas Japan has had neither.



We have always thought that the better comparison between the US now versus Japan is what took place in the mid-1990s in the JGB market. Just like in the US after the 2008 crisis, when there were calls for a permanent rise in US yields, early „93-94 saw JGB rates rise as investors believed that sufficient had been done to create a self-sustained recovery in Japan. The balance of the decade saw a grind lower as deleveraging took hold. Even when we compare against that period, US rates have overshot (Figure 2).



Furthermore, if we compare with the bond bubble experience of 2002-03, the pace of the US rate declines is lining up. This was when Japanese accounts had given up on the economy, whereas now it seems global investors are giving up on the euro‟s existence. It‟s true that risks are two-way in the short term, thus an overshoot under 1.5% on 10s could happen, but locking in at these rates (or lower) will likely result in losses in the not-so-distant future.

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