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500 Years Of Dutch Bond Yields

Tyler Durden's picture


Day after day we are told that stocks are the place to be and that bonds are a disastrous bet as "rates must rise" but it appears that, increasingly, the world's developed (and debt-laden) economies are turning Japanese (with German 2Y rates at 2bps for example). But, for some context as to how low rates really are, Deutsche's Jim Reid unveils 500 years of Dutch (European) interest rates... and we have never been lower. 



As Macronomics reminds us,

"When somebody has too much debt and cannot reimburse it, how do you bail him out? Obviously by restructuring his debts, which imply losses for his creditors.


But when one lends him more money in order for him to pay back what he owes, he is not bailing him out but rather pushing him in a bigger hole! The game until now has been to "print" more money and to add more debt on the shoulders on the indebted ones, to gain some time in the hope that growth will resume and reduce de facto the weight of the existing debt burden and the additional new debt issued to support the initial debt troubles.


This is a big misunderstanding of debt dynamics and its effects on the economy. When debt becomes too big, which it is now the case in many parts of Europe, the servicing drains all the available cash flows and reduces the growth potential."

*  *  *

So, are bonds wrong? Or do they see a world where growth is permanently stifled by the drag of interest expense?

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Tue, 07/01/2014 - 12:30 | 4914133 NotApplicable
NotApplicable's picture

500 years of ZIRP will fix everything!

Tue, 07/01/2014 - 12:34 | 4914148 PartysOver
PartysOver's picture

Or NOT!   When the End comes it will be ugly.   Until then party naked.

Tue, 07/01/2014 - 12:37 | 4914160 Soul Glow
Soul Glow's picture

The Emporer wears no clothes.

Tue, 07/01/2014 - 12:44 | 4914188 Leveraged Algorithm
Leveraged Algorithm's picture

But equities are as safe as tullips!

Tue, 07/01/2014 - 12:45 | 4914199 NoDebt
NoDebt's picture

"The price of tulips has never dropped to zero."

Tue, 07/01/2014 - 12:34 | 4914150 Seasmoke
Seasmoke's picture



fixed it. 

Tue, 07/01/2014 - 12:38 | 4914163 Soul Glow
Soul Glow's picture

In real terms interest has been nelow zero for quite some time.  If rates go negative in nominal terms we know they've played their last card.

Tue, 07/01/2014 - 12:38 | 4914162 Oracle 911
Oracle 911's picture

Said the Keynesian schmuck.

Tue, 07/01/2014 - 12:32 | 4914144 QQQBall
QQQBall's picture

Of course its not working, so we need to do more of it.




Paul K.

Tue, 07/01/2014 - 12:34 | 4914147 Cacete de Ouro
Cacete de Ouro's picture

I have some nice tulips which would make a great investment

Tue, 07/01/2014 - 13:53 | 4914474 crunchyfrog
crunchyfrog's picture

If you have a replacement for Queen of the Night, which is losing vigor, you could become very rich.

Tue, 07/01/2014 - 12:34 | 4914151 madcows
madcows's picture

This is due to massive Central Bank intervention, and people avoiding a stock bubble (also the result of CB intervention).

yields would be much higher if the CB's would go away.

It's different this time, indeed.  We are in the midst of the Bernanke liquidity experiment.

I think it all ends very badly.  So, my 401k is in bonds.  Sure, bonds suck, but the hope is that they're not as at risk as stocks or god forbid, cash.

Tue, 07/01/2014 - 12:56 | 4914242 syntaxterror
syntaxterror's picture

Buy a 10 year bond yielding 2.2% and watch its price surge as the 10 year goes to 1.1%.


Tue, 07/01/2014 - 13:28 | 4914356 madcows
madcows's picture

Stay in stocks and watch it collapse 50%.

Or, stay in cash and watch it lose 6%+ each year.

There is nowhere safe to hide.  CBs have destroyed destroyed all the markets.

Tue, 07/01/2014 - 13:31 | 4914383 GoldSilverDoc
GoldSilverDoc's picture

"There is nowhere safe to hide."

Yes there is.

Tue, 07/01/2014 - 14:19 | 4914543 pcrs
pcrs's picture

They control the guns as well. They can tax you put of everything.

Tue, 07/01/2014 - 12:35 | 4914152 Soul Glow
Soul Glow's picture

Faith and credit btchez

Tue, 07/01/2014 - 12:37 | 4914156 LawsofPhysics
LawsofPhysics's picture

Pretty disingenuous chart.  How many different currencies have the Dutch had to deal with over the same time period?


Tue, 07/01/2014 - 12:48 | 4914215 debtor of last ...
debtor of last resort's picture

Among them was one world reserve currency. That one passed away too.

Tue, 07/01/2014 - 12:37 | 4914161 Amish Hacker
Amish Hacker's picture

If only the bond vigilantes hadn't ridden off into the sunset... Now it looks like ZIRP to infinity.

Tue, 07/01/2014 - 12:39 | 4914169 LawsofPhysics
LawsofPhysics's picture

"Now it looks like NIRP to infinity." - fixed.

Tue, 07/01/2014 - 12:38 | 4914167 Dr. Engali
Dr. Engali's picture

The central banks will push all yields to zero before we are done.

Tue, 07/01/2014 - 12:41 | 4914181 JenkinsLane
JenkinsLane's picture

Everything you ever wanted to know about Dutch bond yields but were afraid to ask.

Tue, 07/01/2014 - 12:44 | 4914193 NoDebt
NoDebt's picture

"but it appears that, increasingly, the world's developed (and debt-laden) economies are turning Japanese"

Thank you, Tylers.  That's been my core theory of where we're headed ever since I got to ZH.

Tue, 07/01/2014 - 12:45 | 4914195 firstdivision
firstdivision's picture

Yellen will 'Double-Dutch Rudder' you if you buy some stocks.

Tue, 07/01/2014 - 12:47 | 4914209 NoDebt
NoDebt's picture

Do I even want to ask what a Double Dutch Rudder is?

Is it like a Double Dutch Irish Sandwich?

Tue, 07/01/2014 - 12:53 | 4914222 Dr. Engali
Dr. Engali's picture

I would caution against it. Last time I checked on something somebody mentioned here it was a lemonade party... I still can't get the imaged scrubbed out of my head.

Tue, 07/01/2014 - 12:55 | 4914240 centerline
centerline's picture

Thanks. Probably just saved me from a visit from my IT folks!

Tue, 07/01/2014 - 12:53 | 4914225 syntaxterror
syntaxterror's picture

The Era of Interest is over. Rest in peace.

Tue, 07/01/2014 - 12:53 | 4914226 centerline
centerline's picture

Yeah, the word "growth" might be the problem there.  Normalcy bias anyone?

Tue, 07/01/2014 - 12:57 | 4914249 BrigstockBoy
BrigstockBoy's picture

Long tulips...

Tue, 07/01/2014 - 13:00 | 4914260 localspaced
localspaced's picture

Bear in mind that the Netherlands hasn't been hit by the crisis that hard and has become a tax haven to multinationals. We have the same problems as the rest of the western economies just not as urgent...we don't have mass unemployment or people losing their houses...I guess that for bonds we just found ourselves on the good side of the fence.

Americans like to think of us as a near socialist welfare state but in fact we've been cutting welfare spending constantly since the 80s. Bond markets like that shit.

Tue, 07/01/2014 - 13:21 | 4914329 juggalo1
juggalo1's picture

I don't understand the point of this chart in relation to current yields.  It looks like rates below 5% are not much of an aberration, and I personally suspect that current published long term interest rates are more of a product of modern information than modern economies.  I agree that rates will likely rise to 5% sometime.  On the other hand, assuming we have reached "the end of growth", real interest rates around 2 to 3% may be justified.

Tue, 07/01/2014 - 13:25 | 4914346 Flakmeister
Flakmeister's picture

All it reflects is a slow grind to a halt....

Tue, 07/01/2014 - 15:42 | 4914895 lasvegaspersona
lasvegaspersona's picture

So whats the problem? Chronic low yield low growth is bad?

Turns out the world falls apart if growth doesn't allow more money to flow to pay off old loans.

We are in a zone from which there is no easy way out. Hyperinflation is the chosen course every time.

They will whine about deflation but since it is a mere decision that can be made with no limits they will chose increased money creation again.

They do all they can but when there is no other choice they will sacrifice the currency. I'm guessing that we are close, but who knows.

Tue, 07/01/2014 - 18:04 | 4915374 AdvancingTime
AdvancingTime's picture

A great deal of our economic system is about debt. It is important to remember not all debt is created equal. A mirage is a naturally occurring optical phenomenon in which light rays are bent to produce a displaced image of distant objects. Joining the idea of a mirage and contagion with the reality of collapsing debt forms an interesting subject.

It is important to remember all debts and obligations do not come due at the same time. Also, it must be noted when a bill is not paid or defaults it often starts a long and drawn out legal battle, this collection process that may extend years without harsh consequences. This my friends is the reality of modern life in America and much of the world. More on this subject in the article below.


Tue, 07/01/2014 - 17:55 | 4915346 AdvancingTime
AdvancingTime's picture

It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward.  When this happens we are at the end game.

At some point the return on loaning money is simply not worth the risk!  Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.


Tue, 07/01/2014 - 22:31 | 4916346 MrSteve
MrSteve's picture

Regarding the durability of age-old assets, where did the expression "buy real estate, they ain't making anymore of it" come from? I know, ®ealtors is the smarty pants answer but the high cost of RE in Olde Europe is also part of the solution to the variations in currency value. The Greeks determined that good ships were an excellent asset to hedge uncertainty and taxation. Land is a solid basis for wealth if you have the money to pay the taxes and survive any and all revolutions, etc. Land and good steel tools seem to last longer than humans and most governments do...

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