December 18, 2014


Deflation Stalks the Globe (Mark Gilbert, 12/19/14, Bloomberg View)
In the U.S. Treasury market, dealers have dissected the securities into so-called STRIPS -- Separately Traded Interest and Principal Securities -- at a pace that's swollen the market to $211 billion, its biggest since 1999. Strips, which lose value quicker than just about anything else if inflation accelerates, have instead posted returns approaching 50 percent this year, Susanne Walker reported for Bloomberg News this week. U.S. bondholders are so relaxed about inflation that they're almost horizontal.

And in Germany, investors are paying for the privilege of stashing their cash in government debt -- another sign that they don't expect inflation to erode the value of their returns.

Some countries are already in deflation. In Sweden, consumer prices dropped for a fourth consecutive month in November, prompting the central bank yesterday to commit to keeping its main interest rate at zero until the second half of 2016. Spain, which is at the mercy of the ECB's policies, has seen deflation for the last five months, with prices dropping by 0.4 percent in November.

Even in the U.K., where the economic recovery is relatively robust, figures yesterday showed inflation at its slowest in more than a decade, with November consumer prices rising just 1 percent.

Posted by at December 18, 2014 4:32 PM

blog comments powered by Disqus