In order to take advantage of its subzero interest rates, the Japanese government is considering issuing 50-year bonds for the first time in its history, according to a new report from the Wall Street Journal.
As part of efforts to stimulate the national economy and move ahead with the “helicopter money” initiative, Prime Minister Shinzo Abe is set to announce the 50-year bond plan in the next several days. If the Japanese leadership does move ahead with the bold move then it could go into effect as early as March 2017.
Reportedly, if Tokyo does proceed with 50-year bonds then it may have weigh the possibility of negatively impacting 40-year bonds, said Takahiro Tsuji, the director of the Finance Ministry’s market finance division.
The prime minister, known for the abysmal failure of Abenomics, is putting forward an economic stimulus package worth 28 trillion yen ($400 billion).
Soon after reports hit of offering the longest maturity of Japanese government debt in the post-war era, stocks on the Nikkei rose. But the Japanese yen did fall.
Up to this point, the Bank of Japan (BOJ) has only purchased debt from the markets. However, there have been increasing calls from the government and several central bank officials that the BOJ should purchase government bonds as well because to them there is very little difference.
Although it would garner tremendous business headlines, Japan wouldn’t be the only government to embrace long-term bonds. This method of economic stimulus has been utilized by European governments.
Earlier this year, for instance, the governments of France and Spain started to sell 50-year bonds, which allowed them to take advantage of low borrowing rates until the 2060s. Meanwhile, Belgium and Ireland doubled that rate and began to sell 100-year bonds. Even Italy is considering following the paths of the aforementioned countries.
Here is a chart courtesy of Bloomberg:
Despite the very low yields (Japan’s 40-year bond yields just 0.345 percent), investors still find these kinds of bonds attractive because the rest of the bond market is producing negative yields (SEE: Global Negative Bond Yields – Swiss 30-year bond yield dips into subzero territory). In fact, approximately $1 trillion of government debt is sitting in negative territory. With the financial markets sitting a volatile position and the lack of global economic growth, investors believe these negative-yielding bonds are safer investments.
We’re definitely in for trying times in this astronomical bond bubble. When the bond bubble bursts, the 2008 economic collapse will look like a breeze.
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