Half the world’s bonds have yields that can’t match inflation
About $30.2 trillion of bonds offer yields below zero after accounting for inflation. The amount has surged from $25 trillion less than a month ago. The figures are based on the bonds in the Bloomberg Barclays Global Aggregate Bond Index, which has a market value of $55.6 trillion.
10-year yields
There are now 12 countries whose government debt sports negative 10-year yields. Switzerland leads with a 10-year yield of -0.92% followed by Germany, with a 10-year yield of -0.53%, down to Slovenia in 12th position with a 10-year yield barely in the negative of -0.04%.
The US, with its 10-year yields of 1.73% is in 30th position of the 51 countries. This puts the US two places behind Italy, in 28th place, with a 10-year yield of 1.51%. The list has only 51 places, and the US already has a low 10-year yield of 1.73% is all the way down in 30th position! Greece, which defaulted on its debts in 2012 and imposed big haircuts on holders of Greek government bonds, is in 33rd place with a 10-year yield of 2.02%.
10 years of US stock market prices
Below is a visualization of the US stock market in the past 10 years returns. Every day for the past 10 years is captured in the graph. The worst day of the market in the past decade was August 8, 2011, which was a response to the credit rating downgrade of the US sovereign debt. The S&P 500 Index dropped nearly 7% that day.
One of the best days was on December 26, 2018, where the S&P 500 rose to 4.9%. This was the first trading day after the dramatic Christmas Eve sell-off.
The Psychology of Prediction
Here are some notable flaws, errors, and misadventures that occur in people’s heads when predictions are made.
The distinction between “wrong” vs. “early” has less to do with analytics than the social ability to prevent listeners from giving up on you. Say it’s 2003 and you predict the economy is going to collapse under the weight of a housing bubble. In hindsight, you got that right. But it’s 2003. So those who listened to your predictions have to wait four years for that prediction to come true.
Credibility is not impartial: Your willingness to believe a prediction is influenced by how much you need that prediction to be true.
History is the study of surprising events. Prediction is using historical data to forecast what events will happen next.
Predictions are easiest to make when patterns are strong and have been around for a long time – which is often when those patterns are about to expire.
Predicting the behavior of other people relies on understanding their motivations, incentives, social norms and how all those things change. That can be difficult if you are not a member of that group and have a different set of life experiences.
If you refuse to make predictions because you know how hard they are you may become suspect of everyone else’s predictions even if they have insight and skills you don’t.
The effort put into a prediction may increase confidence more than accuracy. There are stories of Tiger Woods hitting 1,000 balls at the range without a break. And of Jason Williams practicing dribbling for hours on end without ever shooting a ball. That’s how you become an expert.
This week we all combined for a midsummer potluck!
About $30.2 trillion of bonds offer yields below zero after accounting for inflation. The amount has surged from $25 trillion less than a month ago. The figures are based on the bonds in the Bloomberg Barclays Global Aggregate Bond Index, which has a market value of $55.6 trillion.
10-year yields
There are now 12 countries whose government debt sports negative 10-year yields. Switzerland leads with a 10-year yield of -0.92% followed by Germany, with a 10-year yield of -0.53%, down to Slovenia in 12th position with a 10-year yield barely in the negative of -0.04%.
The US, with its 10-year yields of 1.73% is in 30th position of the 51 countries. This puts the US two places behind Italy, in 28th place, with a 10-year yield of 1.51%. The list has only 51 places, and the US already has a low 10-year yield of 1.73% is all the way down in 30th position! Greece, which defaulted on its debts in 2012 and imposed big haircuts on holders of Greek government bonds, is in 33rd place with a 10-year yield of 2.02%.
10 years of US stock market prices
Below is a visualization of the US stock market in the past 10 years returns. Every day for the past 10 years is captured in the graph. The worst day of the market in the past decade was August 8, 2011, which was a response to the credit rating downgrade of the US sovereign debt. The S&P 500 Index dropped nearly 7% that day.
One of the best days was on December 26, 2018, where the S&P 500 rose to 4.9%. This was the first trading day after the dramatic Christmas Eve sell-off.
The Psychology of Prediction
Here are some notable flaws, errors, and misadventures that occur in people’s heads when predictions are made.
The distinction between “wrong” vs. “early” has less to do with analytics than the social ability to prevent listeners from giving up on you. Say it’s 2003 and you predict the economy is going to collapse under the weight of a housing bubble. In hindsight, you got that right. But it’s 2003. So those who listened to your predictions have to wait four years for that prediction to come true.
Credibility is not impartial: Your willingness to believe a prediction is influenced by how much you need that prediction to be true.
History is the study of surprising events. Prediction is using historical data to forecast what events will happen next.
Predictions are easiest to make when patterns are strong and have been around for a long time – which is often when those patterns are about to expire.
Predicting the behavior of other people relies on understanding their motivations, incentives, social norms and how all those things change. That can be difficult if you are not a member of that group and have a different set of life experiences.
If you refuse to make predictions because you know how hard they are you may become suspect of everyone else’s predictions even if they have insight and skills you don’t.
The effort put into a prediction may increase confidence more than accuracy. There are stories of Tiger Woods hitting 1,000 balls at the range without a break. And of Jason Williams practicing dribbling for hours on end without ever shooting a ball. That’s how you become an expert.
This week we all combined for a midsummer potluck!
