Debt to GDP Sickness: Time to Short Japanese Bonds

Remember, you heard it hear first.  Europe is reeling as international investors are concerned with the sovereign debt of the PIGS, i.e. Greece et al.  Greece for example has debt levels at 108% of their GDP.  Going over 100% is a big red flag and send investors running for cover as bonds get downgraded.  Portugal is at 75% and the US is about 70%.  Japan is at 192% of GDP. 

Yet, they have bond yields about as low as you can go, under 3%.  How is that?  The Economist reports that the reason is they do not have a lot of speculators.  Most of the people owning the bonds are Japanese banks, insurance companies and other captive investors.  International investors make up only 5% of their bondholders (See http://bit.ly/bBiVIf).  
 It certainly seems likely that at some point the worst fears of the bears will come to pass. Debt servicing already uses up some 35% of government revenues. Imagine what that figure would look like if Japan paid the same level of yields as Germany (or worse still, Greece). A fair chunk of Japanese debt is owned by government agencies, a financing pyramid that will eventually collapse. Historically countries with very high levels of government debt have defaulted or, more usually, inflated the problem away.

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