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Japan’s Government Bonds in the Red

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Japan’s Government Bonds in the Red

For the first time in Japan’s history of issuing bonds, Japanese treasury’s 20 bonds fluctuated negative returns.

This means that trustees are no longer gaining profit from the interest of the treasury bonds.

Economists are speculating that this is due to investors seeking economic stability after Britain’s exit from the European Union.

Other changes in Treasury bond returns include:

  • The ten-year government bond yield has dropped into the negative, currently at -0.275 percent
  • The thirty-year bond yield fell as low as 0.015 percent last Wednesday
  • The twenty-year bond yield fell as low as -0.005 percent last Wednesday

Bond yield is the return an investor can expect on their investment in a bond.

In May, the bond yield for Japanese treasury bonds was as high as a full 1 percent.

The global market has had a rapid response to Brexit.

Multiple major assets managers in Britain blocked investors from taking money from real estate funds (the market for which in the U.K. is experiencing turmoil).

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This caused the value of the British pound to decline substantially.

It is currently lower valued than it has been in 31 years.

Investors put their money into yen more than any other currency, including the U.S. dollar, for safe keeping.
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The value of the Japanese Yen has increased from 101 yen/USD to 100 yen/USD.

Due to this growth, bonds benefited while investors turned less of their attention to stocks.

Since Wednesday, the return on all types of Japanese government treasury bonds has returned into the positive margins.

Japan issues a very high amount of government bonds, both long and short term.

There are ten, twenty, thirty, and forty year maturities.

The Japanese government issues over $143 billion USD in bonds last year (14.1 trillion yen).

The Japanese yen has benefited much more from Brexit than the U.S. dollar has.

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The effect of the Brexit panic on currencies in the rest of the world has varied.

Volatility in the stock market has led many investors to panic.

Because the British economy is dominated by large international companies, it does not necessarily depend on the stability of things at home.

However, the uncertain economy and the effects of the United Kingdom separated from the European Union has been enough to scare off investors and businesses in the region.

Despite this panic, by some accounts there have really not been any profound impacts on the stock market in Britain yet.

It seems rather than pulling out, most investors have been waiting and watching what the rest of the world does.

However, apart from the stock market, currency values obviously tell a different story, as many businesses are not comfortable with the potential volatility of the pound.

Many have switched their holdings over to the USD or Yen.

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This knee-jerk negative reaction may not necessarily be a bad thing.

Many economists, including Jason Hollands, have pointed out that even though the decrease in value of the pound makes it so that it is more expensive for Brits to participate in international economies, there is also a plus side.

Since it will now be a relatively cheaper place for European tourists to vacation, it could attract travelers looking for a cheap trip, and in turn, stimulate many parts of the local economy.

Despite this benefit, the international stock market has been extremely volatile as economists have been predicting that Brexit will throw the United Kingdom into a plummeting recession.

It has been estimated that the entire Brexit ordeal has caused the global stock market to lose over $2 trillion.

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This is due to international markets’ fear of economic chaos in an independent Britain.

The U.K.’s overall credit rating plummeted, causing investors to worry that a future recession may cause businesses to leave the nation.

However, many say that the fear of economic chaos is unwarranted.

Major banks such as the European Bank and the Bank of England have stated that they will flood the market with liquidity if needed to prevent the much-feared market crash.

It is certainly possible that the fear over economic turmoil is causing much more market trouble that the actual Brexit referendum.

After all, the nation isn’t independent yet and is not yet falling into a recession, as far as economists can tell.

The fear and impulsive action of investors are potentially causing a huge loss in the global market unnecessarily.

Only time will tell if the market will be able to bounce back in the next few months, or if the British stock market itself will suffer the negative consequences that have been predicted.

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