FP TRADING DESK
Inflation threat looms for bond investors
Posted: January 19, 2010, 9:47 AM by Pamela Heaven
If there’s one question that dominates the investment outlook for the next few years, it’s the question of inflation. If you think that inflation is set to roar, bonds are trash and bonds with long maturities of 10 years or more qualify as particularly toxic waste. On the other hand, if you think that inflation is going to subside, bonds are your best friends and long bonds are an especially good deal.
Vincent Fernando | Jan. 28, 2010, 9:37 AM
If you boil water without releasing any steam everything looks perfectly calm... until the entire pot explodes.
Frequently billed as a highly stable country, Japan's dark secret is that it should have exploded into a hyper-inflationary death spiral years ago.
Worse yet, it could easily take the U.S. financial system and U.S. dollar down with it. That's because the U.S. depends on Japan to fund its own debt binge.
We're not alone here. These concerns have been heavily informed by the research of Societe Generale. Japanese hyperinflation would be disastrous exactly because it goes against what most investors have been taught to expect.