Negative-Yield Bonds a Game Changer for Government Finance

by Lear Capital EditorialMay 19, 2016
Government Bonds

I have a proposition for you. Lend me $100 and I will pay you back $95. Good deal, right? This is essentially what governments and central banks are beginning to offer investors through bonds with negative yields. The central banks in Japan and Europe have actually been raising money this way. Japan offered a -0.024% average yield on 10 year bonds recently and people actually gave them $19.4 billion!

It sounds absolutely insane. But let’s read between the lines here. Under what circumstances would negative-yield bonds be a good deal that people actually took?

Well, it would be a good deal if $95 is the most you can really expect back from money you’ve earned and saved, versus putting it somewhere else. What is the government really telegraphing then?

Probably that through the unreasonable risk elsewhere you’re likely to lose much more or maybe even all of that $100. Or perhaps through tax policy your savings will be significantly eaten away… But this bond will at least keep $95 of that initial $100 safe and return it to you someday.

The unmitigated gall of a government offering bonds for a negative yield necessarily means a $95 return is better than an $80 return. Or a $30 return. Or a $0 return. Think about that.

It also means governments are acknowledging the impossibility of growing their way out of their current debt, and they’ve given up on the idea of growth in the future. They are left with pure theft and extortion to fund themselves.

It is no wonder then that gold, precious metals and other contrarian assets are seeing a bull run these days. Investors are getting the message loud and clear. Growth is an illusion many are giving up on. The game is shifting to wealth preservation. And the last thing you want for a secure portfolio in this environment is everything denominated in the currency of a government that thinks this way. 

It is time to give some serious thought to owning precious metals. We typically recommend allocating 5-20% of your well-balanced portfolio to precious metals like bullion coins or bars. We even have ways to convert retirement accounts to precious metals that are fully IRS compliant.  Please consider this alternative to the shady deals government and central banks are offering you.

While it is true that actual negative interest rates are not here yet, in a de facto sense, they are. When the yield on bonds is less than the rate of inflation (both actual and official) what is the real difference? Going negative is just the next step, and Janet Yellen is dovish enough to consider it.

Call us today to defend yourself against this game changer.

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