Seven Lean Years? Done in Seven Minutes

In Genesis (41:27), Joseph interprets Pharaoh’s dream of 7 fat cows followed by 7 lean (and apparently, ugly) cows, as foretelling the coming feast and then famine, enabling Egypt to prepare for the coming 7 lean years by stockpiling reserves.

Yesterday, the 10-year German bund leaped 12 basis points (see Graph below), along with a surging euro following the weak US GDP report. Now, 12 basis points is a big move, but we’ve seen bond yields move by that magnitude before. What is different about this time is that there is no yield to begin with, so yesterday’s move in the bund wiped out 7 years (!) of income.

If investing at near-zero yields for 10 years is rational, it will prove to be the worst decade for investors since the bubonic plague swept across Europe in the mid-14th century (ok, I made that up; but it could be right). But I’ll bet that it is not actually a rational investment, and monetary policy is distorting all kinds of prices and investment decisions.

• 17 Oct, 2014

  Shades of 2007?

  Nice graphic in today's FT showing the spike in vol and sell-off in risk (Greek bond yields jumped from 5.5% to 9% in ...

• 16 Mar, 2015

  Rebalancings

  Apologies for slipping on the blogs, but I've been traveling around the continent, from Alaska to DC.One of the more ...

• 26 Jun, 2015

  More on Rates...

  A few days ago (Beginning's End) I suggested 2015 might turn out to be the worst year for bond investors in the past ...