Soros: Treasury Yields Could Follow JGB Yields Lower, Renminbi Appreciation is Wild Card (Columbia Speech)

Famed reflexive hedge fund manager, George Soros, gave a speech at Columbia University on 10/5. He said Treasury yields could move even lower if the U.S. follows Japan (deflation, 0% cash rate, 1% 10y Japanese Government Bond yield). He mentioned that US banks would continue to borrow at 0% and invest in Treasuries. We already have the Fed bid in place (NY Fed's Brian Sack's speech on 10/4).  However, if the Chinese Government allowed the Renmimbi to appreciate against the U.S. Dollar it would change his view.

Find the full Soros speech here (
"The tolerance for public debt is highly dependent on the participants’ perceptions and misconceptions. In other words it is reflexive.

There are a number of variables involved. To start with, the debt burden is not an absolute amount but a ratio between the debt and the GDP. The higher the GDP the smaller the burden represented by a given amount of debt. The other important variable is the interest rate: the higher the interest rate the heavier the debt burden. In this context the risk premium attached to the interest rate is particularly important: once it starts rising, the prevailing rate of deficit financing becomes unsustainable and needs to be reigned in. Exactly where the tipping point is located remains uncertain because it is dependent on prevailing attitudes.

Take the case of Japan: its debt ratio is approaching 200%, one of the highest in the world. Yet ten year bonds yield little more than 1%. Admittedly, Japan used to have a high savings rate but it has an ageing and shrinking population and its current savings rate is about the same as the US. The big difference is that Japan has a trade surplus and the US a deficit. But that is not such a big difference as long as China does not allow its currency to appreciate because that policy obliges China to finance the deficit one way or another.

The real reason why Japanese interest rates are so low is that the private sector – individuals, banks and corporations – have little appetite for investing abroad and prefer ten year government bonds at a 1% to cash at zero percent. With the price level falling and the population aging, the real return on such instruments is considered attractive by the Japanese. As long as US banks can borrow at near zero and buy government bonds without having to commit equity and the dollar is not allowed to depreciate against the renminbi, interest rates on US government bonds may well be heading in the same direction."
For recent posts on SorosTreasuries or JGBs (Japanese Government Bonds) click the labels.

China currency must rise to fix imbalances: Soros (Reuters)
Soros Says Currency War Concerns `Not Far Off' Mark as G-7 Officials Meet - Bloomberg

Hat tip Business Insider

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