Economic Uncertainty Adds Downward Pressure On Long Rates

So you think US rates are low? Just look overseas, to Japan, where 10 year JGB's now yield a whopping 1.04%.

And some analysts think rates in Japan could be headed even lower.

I wanted to post this short article for a couple of reasons. First, I continued to be concerned that we are sliding into the same malaise as Japan has been mired in for the last 20 years.

But, second, I wanted to note that it is not necessarily bad news for equity investors. An excerpt from the piece from Nikkei.com:

The recent bond yield movement indicates that the traditionally strong correlation between long-term rates and stock prices has started breaking down.

Domestic stocks have remained firm. At one point Monday, the Nikkei Stock Average was up 130 points from Friday, buoyed by solid earnings from Honda Motor Co. (7267) and other companies that reported good April-June results.

Stock prices have already factored in a U.S. economic slowdown to some degree, but "investor sentiment is not all pessimism because the market has been responding positively to companies that have reported good business results," says Norikazu Kitta at Nikko Cordial Securities Inc.

As I wrote yesterday, it could just be that Japanese investors and savers lack any real alternative to equities, however squeamish stocks might make them feel.

2010/08/03 04:54 - Economic Uncertainty Adds Downward Pressure On Long Rates