Japanese bonds and Swiss National Bank err on the side of deflation.


Unlike Government orchestrated propaganda campaign to proclaim imminent recovery, the Government bonds investors and Central Bankers know that deflation is no where near the end. Both Japanese Government bond prices and Swiss National Bank officials tells us – deflation is here and not going away.

Bloomberg. August 25, 2009.

Japan’s 5-Year Notes Advance on Speculation Deflation to Deepen.

Aug. 25 (Bloomberg) — Japan’s five-year notes rose before a government report this week that economists say will show consumer prices dropped at a record pace in July.

Five-year yields approached their lowest level since September 2005 on speculation the Aug. 28 government report will back expectations the Bank of Japan won’t raise its key interest rate from 0.1 percent this year. Bets that deflation will deepen may increase demand an auction of 1.1 trillion yen ($11.7 billion) in 20-year bonds today.

New numbers on consumer prices are expected to add to signs that deflation will linger in Japan and interest rates will remain low for a long time,” said Takafumi Yamawaki, senior strategist in Tokyo at BNP Paribas Securities Japan Ltd., one of 23 primary dealers required to bid at government debt sales. “Today’s auction should attract enough demand.”

The yield on the 0.7 percent note maturing in June 2014 fell one basis point to 0.625 percent as of the 11:05 a.m. morning close in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.047 yen to 100.35 yen. Twenty-year yields were unchanged at 2.1 percent. A basis point is 0.01 percentage point.

Wall Street Journal. August 25, 2009.

SNB Jordan: Swiss Rates To Remain At Record Low For Now.

ZURICH (Dow Jones)–Swiss interest rates will stay at the current record low for the time being because the risk of deflation still outweighs that of inflation, Swiss National Bank directorate member Thomas Jordan said Tuesday.

“Against the backdrop of a recovery on financial markets and positive economic news, there is speculation regarding a change in monetary policy. However, the time for that hasn’t yet come in Switzerland,” Jordan said in the text to a speech to businessmen.

The SNB can afford to stay put on interest rates, but hikes will be necessary at a later stage and will be unpopular, Jordan added.

Switzerland’s economy looks set to bottom out in the next few months but the recovery will likely be slow and the economic environment remains difficult, he said. “At the moment, deflation risks still prevail,” Jordan said. Swiss private consumption may contract in 2009 for the first time in 16 years, and gross domestic product is likely to contract by up to 3%, Jordan said.

The unemployment rate is likely to stand at slightly below 4% this year and at slightly below 6% next year.

Consumer prices in the country are likely to fall by an average of 0.5% on the year in 2009 before rising by 0.3% next year and by 0.4% in 2010, according to Jordan.

The central bank still provides ample liquidity and is continuing with its policy of influencing rates and currencies through foreign exchange market interventions and bond purchases, Jordan said.

In March, the SNB slashed its target for the three-month Swiss franc London interbank rate, its monetary policy benchmark, to a record low of 0.25%.

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4 Comments

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  2. Posted September 23, 2009 at 3:50 am | Permalink

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