Bond markets in the Asia-Pacific region are having their busiest January for at least a decade, with $32.3 billion in sales, as government guarantees and stimulus plans help boost investor appetite.
It is highly ironic that, for all of the scorn that foreign observers have heaped on the U.S. for instigating the housing bubble, other governments are now copying the same flawed macroeconomic solutions the U.S. is using to find a way back to economic health. Everybody is guaranteeing bank deposits for the indefinite future, among other unsustainable things.
The real test of whether Asian bond markets will spawn a bubble will come if the spread of corporate bond yields over government bond yields widens past 100bps as it has in the U.S. Government safety guarantees and massive new issues are finally heralding the "crowding out" effect long theorized by bond market academics. The only unforeseen twist is that the crowding out has gone global.
My play? I'm staying away from Asian bonds!
