Baby Boomers’ influence on U.S. Treasuries will help hold yields down as people born in the initial decades after World War II shift to fixed-income assets to prepare for retirement, mirroring a pattern in Japan.
The CHART OF THE DAY shows Treasury yields have gradually declined as the proportion of U.S. citizens over 65 years climbed. The age group will swell to 20 percent of the population by 2030 from 14 percent now, according to the U.S. Census Bureau. The chart tracks a similar trend in Japan, where 24 percent are over 65 years, the world’s highest ratio of seniors, up from 19 percent a decade ago.
“As Japan’s population aged, that suppressed bond yields,” said Larry McDonald, the chief equity, credit and policy strategist at Newedge USA LLC in New York. About 4,100 Americans are turning 65 every day, quadruple the number in 2003, he told Bloomberg Radio’s “The Hays Advantage” earlier this month. “Those people are more likely to own bonds,” he said. Baby boomers are considered people born from 1946 to 1964.
Demand from retirees hasn’t been enough to offset a bond market rout this year. Treasuries have tumbled on speculation the Federal Reserve will taper an $85 billion monthly debt-buying program designed to stimulate the economy amid signs output and jobs are growing. Government securities have fallen 3.9 percent through Aug. 22, based on the Bloomberg U.S. Treasury Bond Index.
Japan’s 10-year bonds yielded 0.765 percent at the end of last week, the lowest of 27 developed markets Bloomberg tracks. The nation’s central bank has its own debt-buying program, worth about 7 trillion yen ($71 billion) of securities a month.
Investors are snapping up Japanese bonds even though the nation’s debt is equivalent to more than double its gross domestic product, McDonald said. The ratio is the highest in the world, data compiled by Bloomberg show. The U.S. debt is equivalent to 74 percent of GDP.