The U.S. Following Japan’s Path to Low Interest Rates; Worst Demand for Japanese Bonds

From Bloomberg:

The Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 in a bid to revive the flagging recovery after a worldwide stock rout.

The Federal Open Market Committee discussed a range of policy tools to bolster the economy and said it is “prepared to employ these tools as appropriate,” it said in a statement today in Washington. Three members of the FOMC dissented, preferring to maintain the pledge to keep rates low for an “extended period.”

The Fed offered a dimmer view of the economy than it did in the last statement in late June. “Economic growth so far this year has been considerably slower than the committee had expected,” it said. The Fed also said it expects a “somewhat slower pace of recovery over coming quarters,” adding that “downside risks to the economic outlook have increased.”

The Fed left its target for the federal funds rate in a range of zero to 0.25 percent, where it’s been since December 2008. It said it will maintain its policy of reinvesting maturing securities without saying for how long.

http://www.bloomberg.com/news/2011-08-09/fed-to-keep-rates-at-record-lows-at-least-through-mid-2013.html


From Bloomberg:

The worst demand on record for 40- year Japanese bonds sold yesterday signals growing concern about Japan’s ability to service the world’s biggest debt pile and the risk of holding long-term securities while markets are volatile.

The 400 billion yen ($5.2 billion) sale drew bids valued at 2.03 times the amount on offer, the weakest since the Ministry of Finance began selling the securities in 2007.

The yield on the 2.2 percent bond maturing in March 2051 jumped 15 basis points to 2.335 percent as of 5:07 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker.

Japan’s Ministry of Finance said that every 1 percentage- point increase in 10-year yields above 2 percent would add 1 trillion yen in debt-servicing costs to a projection of 22.9 trillion yen for the fiscal year starting April 2012. The nation’s total debt may reach 219 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.

http://www.bloomberg.com/news/2011-08-09/worst-40-year-bond-sale-shows-cash-king-as-investors-flinch-japan-credit.html