Dhaval Joshi is clearly in the deflation camp. Bloomberg’s Chart of the Day references his recent RAB Capital sovereign debt commentary as suggesting bond yields are set to “massively collapse.”
Here’s an excerpt:
“Yields on U.S. and U.K. government bonds have room to “decline massively” if history is a guide, according to Dhaval Joshi, chief strategist at RAB Capital Plc.
The CHART OF THE DAY displays the differential between yields on 20-year debt and benchmark interest rates in the two countries, according to data compiled by the Federal Reserve and Bloomberg. Joshi made similar comparisons in a Sept. 3 report.
“Interest rates cannot go up meaningfully for a very long time” in either country, the report said. U.S. Treasury yields have yet to fall far enough relative to the Fed’s target rate for loans between banks to reflect this prospect, he wrote. The same holds true for yields on U.K. gilts by comparison with the Bank of England’s base rate, in his view.”
I haven’t gone that far — but I suspect the fear trade into bonds will end badly.
Government-Bond Yield Gap vs Benchmark Interest Rates
Do US Bonds Resemble Dot Com Stocks? (August 18th, 2010)
U.S., U.K. Bond Yields Set to ‘Decline Massively’: Chart of Day
Bloomberg, September 7, 2010