T21Finance · Macro
10-year bonds, money supply and inflation
Three curves tell most of a country's money story: what its government pays to borrow for 10 years, how fast its money supply grows, and how fast its prices rise. Pick five countries and read ten years of each, then compare them side by side.
1Three curves, in plain words
1.1The 10-year yield
The price of a promise
You lend your government 100 today. It promises to give it back in 10 years and, meanwhile, to say "thank you" every year. The yield is that thank-you: at 4 %, you get 4 a year.
When lenders get nervous (prices running away, a mountain of debt), they ask for a bigger thank-you. A rising yield is a government paying more to be trusted.
1.2Money supply (M2)
How much money is in the game?
Picture the whole economy as one giant board game. M2 is all the money in play: the notes in the players' pockets plus what they can spend straight from their bank accounts. M2 growth is how fast new money joins the game in a year.
New money joins when banks lend more or when the central bank adds money. If it joins much faster than there are new things to buy, players end up bidding prices up, usually a little later.
1.3Inflation
Why your sandwich costs more
Inflation is how much prices rise in a year. At 2 %, a 10 sandwich costs 10.20 next year; at 8 %, it costs 10.80.
When inflation runs above the 10-year yield, the lender is paid back in money that buys fewer sandwiches: the "thank-you" did not even cover the price rise.
The curves below are past annual averages from official open data. The links between them are tendencies: each country has its own central bank, debt and history.
2Five countries, ten years each
10-year government bond yieldMoney supply growth (M2)Inflation
3The five countries side by side
3.110-year government bond yield, %
3.1.1Show the values
3.2Inflation, %
3.2.1Show the values
3.3Money supply growth (M2), %
3.3.1Show the values
4Sources
- Inflation (consumer prices, annual %): World Bank, World Development Indicators ↗, licence CC BY 4.0.
- Money supply growth (broad money, annual %): World Bank, World Development Indicators ↗ (from IMF International Financial Statistics), licence CC BY 4.0. Euro area and its members: European Central Bank ↗, M2 annual growth in December (the members share one currency, so one M2). Canada: Bank of Canada ↗, M2 (gross, seasonally adjusted); growth December over December calculated by Dark Majestic.
- 10-year government bond yield: OECD, Main Economic Indicators, via FRED (Federal Reserve Bank of St. Louis) ↗, licence CC BY 4.0 (OECD); yearly average of the monthly values, calculated by Dark Majestic.
More countries of the G20 and of the next ten emerging economies are added as soon as an open official source of all three series is confirmed for each.