Author Topic: Does the government of Japan get bonds and only have to pay .1%?  (Read 3190 times)

Jeremy E.

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I was looking at the Bond ETF BNDX. The top holding says it's 33.3 Billion to Japan at a .1% interest rate, THATS CRAZY. They even have a lot of other bonds too, between 0-1% interest, one of them is a 20.5 billion bond with a .02% interest rate!!!! Many other countries have bonds with less than 1% interest rate as well. How are these countries able to get so much money with paying so little interest? It seems most U.S. bonds are in the 2-3%ish range, with a few small ones in the 1-2% range. I don't plan on owning bonds until they get up to 5% or so, but I'm just curious what's up with that .02% interest rate on a 20.5 billion dollar bond, that is one of the most ridiculous things I've ever seen.

Aphalite

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #1 on: October 21, 2015, 07:52:57 AM »
Japan has been in a deflationary environment for a while now, so it's not really surprising. Add to that the culture of those companies is to hoard cash, their credit ratings are much higher than the average bond payer here in the US. Nintendo has a rule where they must hold 100 years worth of liquidity in operating costs. I think the last time I looked, they had ~40 years of operating costs in cash, so maybe they've backed off a bit on that, but that's the main reason - you aren't comparing apples to apples when analyzing opportunity costs in the US and in Japan

TreeTired

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #2 on: October 22, 2015, 10:10:33 AM »

aspiringnomad

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #3 on: October 24, 2015, 12:42:32 PM »
Earlier this year Germany sold a 5 year bond at a negative interest rate.

http://www.wsj.com/articles/germany-sells-five-year-debt-at-negative-yield-for-first-time-on-record-1424871074

Switzerland too. Proof that time is not always money?

k290

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #4 on: October 24, 2015, 12:46:25 PM »
SWR is Japan is around 0.5% :)
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Sjalabais

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #5 on: October 24, 2015, 02:17:49 PM »
Remember that financing stuff like that in Japan happens internally to a very large degree. It's a boy's club with a lot of money, a huge slush of money never leaving the country. This is the main reason a country with a ridiculous debth-to-GDP-ratio is still acting like everything's okay. There's no rational way to understand this.

Left

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #6 on: October 24, 2015, 07:21:33 PM »
SWR is Japan is around 0.5% :)
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Isn't this the argument for diversifying internationally? I get why people stick with a US only portfolio... until the US isn't on top anymore :S
I swing back and forth between if I want international or not, but I've made my peace with just holding VT for simplicity. I understand I won't get the "most" gains but I also won't be the "worst" either. I can live with that.


k290

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #7 on: October 25, 2015, 04:18:11 AM »
SWR is Japan is around 0.5% :)
(Serious)
Isn't this the argument for diversifying internationally? I get why people stick with a US only portfolio... until the US isn't on top anymore :S
I swing back and forth between if I want international or not, but I've made my peace with just holding VT for simplicity. I understand I won't get the "most" gains but I also won't be the "worst" either. I can live with that.

Yeah, well the reason it works out so low is due to a market crash in the 90's causing over a decade of no growth in Japan. So the argument for diversifying internationally is to shield yourself from the risk of a particular economy's downturns.

I think (more of a hunch), however, that just throwing your stocks "out there" overseas is not sufficient. You need to put more thought into it. If you live in the US and 100% of your portfolio is in US stocks, and you decide diversify half of it "internationally" you need to be quite diligent about it. If the US stock market crashes and your international stocks are in economies that are largely dependent on exporting to the US then their stocks are also going to tank too. So you haven't really diversified sufficiently. That's just a guess and I haven't done much reading on how various economies are linked and the "best" way to diversify based on location. I guess something like VT might do a pretty good job at achieving it.
« Last Edit: October 25, 2015, 04:27:11 AM by k290 »

brainfart

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #8 on: October 25, 2015, 04:40:25 AM »
I think (more of a hunch), however, that just throwing your stocks "out there" overseas is not sufficient. You need to put more thought into it. If you live in the US and 100% of your portfolio is in US stocks, and you decide diversify half of it "internationally" you need to be quite diligent about it. If the US stock market crashes and your international stocks are in economies that are largely dependent on exporting to the US then their stocks are also going to tank too. So you haven't really diversified sufficiently. That's just a guess and I haven't done much reading on how various economies are linked and the "best" way to diversify based on location. I guess something like VT might do a pretty good job at achieving it.

So in the US indexing is fine but internationally you need to time the markets and do stock picking? Sounds like a plan.

Leanthree

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Re: Does the government of Japan get bonds and only have to pay .1%?
« Reply #9 on: October 29, 2015, 03:02:05 PM »
There are a ton of reasons for low bond rates but a lot of it in Japan has to do with intentional currency devaluation to keep their exports competitive with other countries who have had low interest rate environments for many years now.

Some of it is also an aging population which leads to greater demand for low-risk investments.