Home » Posts tagged 'bond market' (Page 2)

Tag Archives: bond market

Wolf Richter: Making Sense Of The Recent Market Gyrations

October 15, 2018

PODCAST

Wolf Richter: Making Sense Of The Recent Market Gyrations

Which triggers are driving the action? What’s next?

Every week at PeakProsperity.com, we record a podcast exclusive for our premium subscribers titled Off The Cuff, where Chris and a weekly expert discuss the notable developments of the week. Every once in a while, we’ll share one of these episodes with the general public, which we’re doing this week. Here’s Chris Martenson in discussion with Wolf Richter, evaluating the causes and repercussions of last week’s violent drop across the stock and bond markets.

Recorded last week as the market was in full melt-down mode, Chris and Wolf Richter decode the underlying drivers of the sudden reversal, and peer into the future to predict what is most likely to happen next. Both agree that, whether stocks are briefly ‘rescued’ in the ensuing days, the long-awaited downward re-pricing of the ‘Everything Bubble’ is nigh.

As Wolf puts it:

The emerging market stock index is down 22% from January. So they have gotten hit pretty hard. There’s this trend from the outside toward the core. So when something deteriorates, it starts at the outside and moves toward the core, the core being the higher quality US financial instruments. So that’s probably a dynamic that has already started. And I agree with you. The central banks removing liquidity is a big thing, and it has a big impact.

And people have said, for years, well, QE didn’t cause stocks to go up. So when that goes away, it’s not going to cause stocks to go down. But that’s just not true. The purpose of QE, as Bernanke himself explained it in a Washington Post editorial in 2010, is to create the wealth effect, to bring asset prices up so that the wealthy feel wealthier and spend more money and then this someone trickles down.

…click on the above link to read the rest of the article…

Has “It” Finally Arrived?

October 13, 2018

Shutterstock

Has “It” Finally Arrived?

Is this week’s 6% market drop the start of the Big One?

With the recent plunge in the S&P 500 of over 5%, has the long-anticipated (and long-overdue) market correction finally begun?

It’s hard to say for certain. But the systemic cracks we’ve been closely monitoring definitely got an awful lot wider this week.

After nearly a decade of endless market boosting, manipulation and regulatory neglect, all of the trading professionals I personally know are watching with held breath at this stage. The central banks have distorted the processes of price discovery and market structure for so many years now, that it’s difficult to know yet whether their grip on the markets has indeed failed.

But what we know for certain is that bubbles always burst. Inevitably. Each is built upon a fallacy; and when that finally becomes apparent to enough people, the mania ends.

And today, there are currently massive bubbles in stocks, bonds and real estate. Every one courtesy of the central banks (as we have written about in great detail here at PeakProsperity.com over the years).

And with no Plan B in place to gracefully exit the corner they have painted themselves — and thereby the global economy — into, the only option available to them is to double-down on the pretense that we’d all be screwed without their stewardship. They have to do this I suppose. To admit the truth would throw the world into panic and themselves out of a job.

Who knows what they think privately? But in public, they give us real gems like these:

Williams Says Fed Rate Hikes Helping Curb Financial Risk-Taking

U.S. interest-rate increases will help reduce risk-taking in financial markets, Federal Reserve Bank of New York President John Williams said.

…click on the above link to read the rest of the article…

Louis Gave On Corporate Debt And The Next Liquidity Crisis

October 8, 2018

Louis Gave On Corporate Debt And The Next Liquidity Crisis

This has been a good year for the stock market so far, at least in the U.S., yet many investors are wondering when the other shoe will drop. We spoke with Louis-Vincent Gave, founding partner and CEO at Gavekal Research, about the explosion in near junk corporate debt and why this is a problem during the next economic downturn.

For audio, see Louis Gave: Bond Market Liquidity Is the New Leverage

Bond Market Liquidity Is a Problem

The situation that’s developed is concerning. With the growth of exchange-traded funds (ETFs) in the corporate bond space, we have players that are guaranteeing daily liquidity in an asset class that historically doesn’t always guarantee liquidity.

Today, if investors need liquidity in a hurry, they’re essentially on their own, Gave stated. Meaning we might notice a dislocation in corporate bonds, keeping in mind that we’ve seen record issuance.

Normally, corporate debt relative to GDP makes highs at the bottom of the cycle when GDP is shrinking and everybody’s tapping their credit lines. Corporate debt relative to GDP is extremely high, and interestingly, Gave noted, the amount of debt that’s grown the fastest is just one notch above junk.

During the next recession, the number of companies that will be downgraded will lead to forced selling by institutions. This is one of Gave’s greatest concerns today.

Source: Gluskin Sheff

Buyer of Last Resort

We’ve had a semi-crisis in emerging markets this year and U.S. bond yields have come down, which normally provides some cushion to the system. This is the first time in Gave’s career where U.S. bond yields have gone up while emerging markets were under pressure.

…click on the above link to read the rest of the article…

We Are All Lab Rats In The Largest-Ever Monetary Experiment In Human History

August 18, 2018

We Are All Lab Rats In The Largest-Ever Monetary Experiment In Human History

And how do things usually work out for the rat?

There are ample warning signs that another serious financial crisis is on the way.

These warning signs are being soundly ignored by the majority, though. Perhaps understandably so.

After 10 years of near-constant central bank interventions to prop up markets and make stocks, bonds and real estate rise in price — while also simultaneously hammering commodities to mask the inflationary impact of their money printing from the masses — it’s difficult to imagine that “they” will allow markets to ever fall again.

This is known as the “central bank put”: whenever the markets begin to teeter, the central banks will step in to prop/nudge/cajole the markets back towards the “correct” direction, which is always: Up!

It’s easy in retrospect to see how the central banks have become caught in this trap of their own making, where they’re now responsible for supporting all the markets all the time.

The 2008 crisis really spooked them. Hence their massive money printing spree to “rescue” the system.

But instead of admitting that Great Financial Crisis was the logical result of flawed policies implemented after the 2000 Dot-Com crash (which, in turn, was the result of flawed policies pursued in the 1990’s), the central banks decided after 2008 to double down on their bets — implementing even worse policies.

The Largest-Ever Monetary Experiment In Human History

It’s not hyperbole to say that the monetary experiment conducted over the past ten years by the world’s leading central banks (and its resulting social and political ramifications) is the largest-ever in human history:

(Source)

This global flood of freshly-printed ‘thin air’ money has no parallel in the historical records. All around the world, each of us is part of a grand experiment being conducted without the benefits of either prior experience or controls. Its outcome will be binary: either super-great or spectacularly awful.

…click on the above link to read the rest of the article…

Italian Bond Market Crisis Coming Up

August 7, 2018

Italian Bond Market Crisis Coming Up

Italy’s 10-Year bond yield surged around the Italian election. There’s heavy issuance in Sept and ECB tapering in Oct.

The yield on Italian bonds surged in May on the victory of the League- and Five Star in the national election. The alliance does not intend to follow EU budget rules.

Heavy issuance is coming up in September. And in October, the ECB is scheduled to taper its QE bond purchases. This Combination of Events May Derail the Italian Bond Market.

Bankers lining up new company bonds in September may find that budget and spending discussions in Italy could derail what’s usually the second-half’s busiest issuance month. That’s what happened in May, another typically busy month for sales, when the Italian election result triggered a government bond sell-off and issuance slump.

“If we have something that resembles what we saw in May, the primary market should basically come to a halt,” said Marco Stoeckle, a credit strategist at Commerzbank AG. “If we have the Italian government curve inverting, anything like that would be enough to significantly hamper issuance volumes. I guess the market would be closed.”

Last week, as Italian finance minister Giovanni Tria was said to begin a series of meetings to determine a draft budget, there were already signs of nerves, with 10-year yields breaking above three percent for the first time in nearly two months. Markets fear the nation may be headed for a collision course with European Union partners as the two parties in Italy’s ruling coalition pledge to implement bold spending plans next year.

On May 29, as BTP spreads lurched violently, borrowing costs for all of Europe’s corporate borrowers rose: the Bloomberg Barclays index of corporate spreads widened 100 basis points in a single day — its largest jump in almost two years.

…click on the above link to read the rest of the article…

Weekly Commentary: Intimidate Nobody

July 21, 2018

Weekly Commentary: Intimidate Nobody

Strangely perhaps, but late in the week my thoughts returned to James Carville’s 1992 comment: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

Things have changed so profoundly since then, though I get no sense that many appreciate the momentous ramifications. It seems like ancient history – the bond market king of imposing discipline. Bonds maintained an intimidating watchful eye. No crazy stuff – from politicians, central bankers or corporate managements. The bond market of old would have little tolerance for $1.0 TN deficits, QE or a prolonged boom in BBB corporate debt issuance. Contemporary markets seem to have only a burgeoning desire to tolerate.

July 19 – Reuters (Trevor Hunnicutt and Saqib Iqbal Ahmed): “Donald Trump’s comments that a strong dollar ‘puts us at a disadvantage’ caused an instant fall in the greenback on Thursday and marked another example of the U.S. president commenting directly – and sometimes contradictorily – on the country’s currency. Talking directly about the dollar is a break with typical practice by U.S. presidents, who are wary of being seen as interfering directly with financial markets… ‘There are certain comments most presidents wouldn’t make,’ said Michael O’Rourke, chief market strategist at JonesTrading. ‘They’d defer monetary policy to the Fed and the dollar to the Treasury secretary. But Donald Trump is not most presidents.'”

July 19 – CNBC (Jeff Cox): “President Donald Trump’s move to criticize the Federal Reserve is almost without precedent in a nation that places a high priority on the independence of monetary policy. Almost all of Trump’s predecessors steered clear of Fed critiques in the interest of making sure that interest rates were set to whatever was best for the economy and not to boost anyone’s political fortunes.
…click on the above link to read the rest of the article…

China Launches Quasi QE To Support Banks And Sliding Bond Market

July 19, 2018

China Launches Quasi QE To Support Banks And Sliding Bond Market

With the ECB’s QE coming to an end at the end of the year (absent some shock to the market or economy), some traders have already been voicing concerns which central bank will step in and provide a backstop to the global fixed income market, especially once the BOJ joins the global tightening bandwagon (something it will soon have to as Japan is rapidly running out of monetizable securities, and just moments ago the BOJ announced it would trim its purchases of bonds in both the 10-25 and 25+ year bucket).

Today one answer emerged when China’s central bank – three weeks after its latest RRR cut – announced further easing measures, including the introduction of incentives that will boost the liquidity of commercial banks, helping them to expand lending and increase investment in bonds issued by corporates and other entities.

And in a surprising twist, in order to make sure that Chinese banks and financial institutions have ample liquidity, the PBOC appears to have engaged in quasi QE – using monetary policy instruments such as its medium term loan facility (MLF) – to support the local bond market and banks, especially those that have invested in bonds rated AA+ and below. Effectively, China will directly fund banks with ultra cheap liquidity, with one simple instruction: “increase bank lending and bond purchases.” And since all Chinese banks are essentially state owned, what Beijing is doing is launching a form of stealthy QE, only one where it is not the central bank, but the country’s various commercial banks that do the purchases… using central bank liquidity.

As a reminder, one month ago we noted that the spread between China’s AAA and AA- rated bonds has spiked in the past three months, blowing out to levels not seen since August 2016, and an indication of the market’s growing fears about the recent surge in Chinese corporate defaults.

…click on the above link to read the rest of the article…

Argentina Hikes Rates To 40% To Stall Currency, Bond Market Collapse

May 4, 2018

Argentina Hikes Rates To 40% To Stall Currency, Bond Market Collapse

It may be time to cry for Argentina…

The Central Bank of Argentina (BCRA) just hiked its 7-day repo reference rate to 40.00% – up a stunning 1275bps in a week – in a desperate attempt to stall the collapse of the peso (and ARG bonds) this week.

BCRA hiked this week three times:

4/27 +300bps to 30.25%
5/03 +300bps to 33.25%
5/04 +675bps to 40.00%

The central bank said it will continue to use all tools at its disposal to avoid disruptions in the markets and guarantee a slowdown in inflation. The bank is ready to act again if necessary, it said in the statement.

As The FT reports, appetite for Argentine assets has been waning in recent months as concerns grow over the country’s painfully high level of inflation and large trade and fiscal deficits. A severe drought is also complicating President Mauricio Macri’s efforts to revive Latin America’s third-largest economy. Agricultural exports are one of Argentina’s main sources of hard currency, but the worst drought in decades is expected to hit this year’s soybean and corn harvests. The country’s famed cattle industry is also predicted to rack up millions in losses.

And, of course, adding to Argentina’s woes is the return of US dollar strength.

The peso has now plunged over 17% this year against the dollar, and plunged yesterday by the most since it began its free-float in December 2015. ARS is very modestly stronger as it opens this morning after the hike.

Furthermore, Argentina’s ‘infamous’ Century bonds have collapsed – selling off for 15 days straight as those who bought the 100-year bonds last year in the massively oversubscribed deal are likely regretting that ‘reach for yield’ choice now…

As we said at the time of issuance, while the bond was massively oversubscribed, investors questioned the wisdom of investing for a such a long term in a country as volatile as Argentina.

…click on the above link to read the rest of the article…

Peter Schiff: ‘The Fed Is Like Mr. Magoo! We Are Headed For A Massive Financial Crisis’

April 27, 2018

Peter Schiff: ‘The Fed Is Like Mr. Magoo! We Are Headed For A Massive Financial Crisis’

Peter Schiff has been saying that even though the stock market is on a slow downward slide, the biggest problem is actually in the bond market. Last week, Schiff warned us to be wary of the calm before the storm, and this week, he said most, including the Federal Reserve, are oblivious to the upcoming crash.

Yields have risen to levels not seen since before the 2008 crash. More significantly, the yield curve is flattening, according to Schiff.

According to Seeking Alpha, Schiff pointed out, if you go back to the Second World War and look at average bond yields, these low rates are an aberration. They’ve been low for a long time, but they aren’t going to stay low forever. And yet the market seems to think it’s going to go on for another 30 years.

“Clearly, the market assumes that interest rates on 10-year government bonds are going to stay just barely over 3% for the next 20 or 30 years. I mean, that is crazy. Why would anybody think that?”

Just consider the deficits as well. The federal government is running $100 billion per month budget deficits – and this is during a supposed economic expansion. What’s going to happen when we hit a recession? And of course, rising interest rates just compound the problem. As Treasuries come due, the government has to replace them with higher interest rate bonds. This expands the deficit even further.

Also compounding the problem is the money printing scheme the Federal Reserve has taken to. Why in the world would any rational person assume inflation will remain low?

…click on the above link to read the rest of the article…

Danielle DiMartino Booth: Don’t Count On The Powell Fed To Rescue The Markets

February 12, 2018

Danielle DiMartino Booth: Don’t Count On The Powell Fed To Rescue The Markets

The new Fed Chair may break from his predecessors

The recent gut-wrenching drop in asset prices began on the first day of the job for new Federal Reserve Chairman Jerome Powell.

How is Mr. Powell likely to react to a suddenly sick-looking market? Will he step in forcefully to reassure investors that there’s a “Powell put” in place as a backstop?

To address these questions, former analyst at the Federal Reserve Bank of Dallas, Danielle DiMartino Booth, returns to the podcast this week. In her opinion, having studied Powell’s previous statements, she thinks those expecting him to continue the market support his predecessors provided will likely be quite disappointed.

Powell appears to be no large fan of continued quantitative easing, and has long been on the record as concerned about the eventual pain its unwind will cause. He very well may resist riding to the market’s rescue at this time, allowing natural market forces to finally have their way:

Look, this is a message that market participants do not want to hear: It is not the Federal Reserves job to put a floor under risky asset prices.

Compare and contrast Jerome Powell’s silence in the wake of the flash crash on his first day at work to Alan Greenspan — who got on an airplane the day after the Black Monday crash of 1987, canceling an appearance he was to have made, and reassuring the markets with a statement on Tuesday morning that the Federal Reserve was standing by and ready and willing and available to satisfy any kind of disruption in the banking and financial systems. That was the day — October 20, 1987 — that the Greenspan put was born.

…click on the above link to read the rest of the article…

Bond Market Smells Inflation, Begins to React

January 14, 2018

Bond Market Smells Inflation, Begins to React

Inflation expectations now exceed the Fed’s target.

The 10-year US Treasury yield breached 2.5% on January 9 and hasn’t looked back since, closing on Friday at 2.55%. The three year yield closed at 2.12%, the highest since October 2008. The two year yield, after breaching 2% on Friday intraday, closed at 1.99%, the highest since September 2008.

Bond prices fall when yields rise. And the selloff in three-year maturities and below shows that the short end of the bond market is reacting to the Fed’s rate-hike environment.

The moves in the 10-year yield, however, defied the Fed in much of 2017, with the yield actually dropping. With long-term yields falling and short-term yields rising, the yield curve “flattened,” and there were fears that the yield curve would “invert,” with 10-year yields dropping below two-year yields – a scenario that has proven dreadful in the past, including just before the Financial Crisis. But recently, the 10-year yield too has begun to respond.

Though the “new Fed” in 2018 hasn’t fully taken shape yet, with several key vacancies still to be filled, there is already tough talk even among the “doves.” And that’s where tough talk matters.

On Thursday it was New York Fed President William Dudley who outlined the “two macroeconomic concerns” he is “worried about”: “The risk of economic overheating,” and that the markets are blowing off the Fed. In the end, the Fed “may have to press harder on the brakes,” he said.

On Friday, it was Boston Fed President Eric Rosengren who told the Wall Street Journal that he expected “more than three” rate hikes this year to get this under control before it’s too late. “I don’t want to get to a situation where we have to tighten more quickly,” he said, citing specifically the “fairly ebullient financial markets,” and the risks of waiting too long.

…click on the above link to read the rest of the article…

Gold Only Safe Asset Left – David Stockman

December 21, 2017

Gold Only Safe Asset Left – David Stockman

Record high stock and bond prices are flashing danger signs to former Reagan White House Budget Director David Stockman. Stockman contends, “I don’t think we are going to have a liquidity crisis. I think it’s going to be a value reset. I think there is going to be a jarring downward price adjustment both in the stock market and in the bond market. This phantom or phony wealth that has been created since the last crisis is going to basically evaporate.”

So, what asset is safe? Stockman says gold and goes onto explain, “I think the time to buy (gold and silver) is ideal. Gold is the ultimate and only real money. Gold is the only safe asset when push comes to shove. They tell you to buy the government bond, that’s a safe asset. It’s not a safe asset at its current price. I am not saying the federal government is going to default in the next two or three years. I am saying the yield on a 10-year bond of 2.4% is way below of where it’s going to end up. So, the only safe asset left is gold. This crazy Bitcoin mania has drained off what would otherwise be a demand for gold. . . . When Bitcoin collapses, spectacularly, which it will because it’s sheer mania in the markets right now. When it collapses, I think a lot of that demand will come back into gold, as well as people fleeing the standard stock and bond markets for the first time in 9 or 10 years.”

What about the so-called Trump tax cuts? Stockman predicts, “I think it’s going to be a fiscal calamity of Biblical proportions. I want to be clear. I am always for tax cuts and shrinking the size of government, but you have to earn it. You have to cut spending and entitlements and this massive defense budget.

…click on the above link to read the rest of the article…

Stephen Poloz Right To Be Worried

December 16, 2017

Stephen Poloz Right To Be Worried

Bank of Canada governor Stephen Poloz cited numerous worries plaguing the economy during his speech to Toronto’s financial elites yesterday at the prestigious Canadian Club.

However, the title of Poloz’s presentation, “Three things keeping me awake at night” seemed odd, given positive recent Canadian employment, GDP and other data.

Poloz highlighted high personal debts, housing prices, cryptocurrencies and other causes for concern, along with actions that the BoC is taking to alleviate them. His implicit message was (as always) “We have things under control.”

But if that’s all true, then Canada’s central bank governor should be sleeping like a baby. So, what is really keeping Mr. Poloz up at night? Three possibilities come to mind.

The Poloz Bubble

Firstly, far from just a housing bubble, Canada’s economy shows signs of being in the midst of an “everything bubble.” Bitcoin, for example, hovered near CDN $23,000 this week. Stock and bond valuations are not far behind in their relative loftiness.

Worse for Poloz, who took office four years ago, his fingerprints are all over those bubble-like levels.

Canadian stock, bond and house prices were already at dizzying heights when Stephen Harper hired Polozwith the implicit expectation that he would juice up the economy, in preparation for what Canada’s then-Prime Minister knew would be a tough upcoming election.

Poloz didn’t disappoint, promptly delivering a nice Benjamin Strong-styled “coup de whiskey” to asset prices in the form of two interest rate cuts, which brought the BoC’s policy rate down to just 0.50% during the ensuing months.

Although Harper lost the election, loose BoC policy continues to provide the Canadian government with free money to borrow and spend as it wishes.

More broadly, the Poloz BoC’s current policy, like that of the US Federal Reserve, is to boost asset prices even higher in the hope that the resulting wealth effect will trickle down to spur economic activity among ordinary Canadians.

…click on the above link to read the rest of the article…

Market Red Flag: Stocks May Be About To Tank: “If There’s One Thing That You Need To Pay Attention To It’s This…”

December 16, 2017

Market Red Flag: Stocks May Be About To Tank: “If There’s One Thing That You Need To Pay Attention To It’s This…”

Stock and bond markets may be teetering on the edge of a widespread crash following a stellar year that has seen all-time highs across just about every major asset class. Earlier today Zero Hedge reported that Bloomberg market commentator Mark Cudmore says markets could be in for a violent downside break in the weeks ahead.

It’s a sentiment also shared by Traders Choice analyst Greg Mannarino, who up until this point has been generally bullish on short-term market movements. On Thursday, however, Mannarino reports that bond buying, which has been used to prop up stocks through massive cash injections in recent weeks and months, failed to keep stocks from falling.

This, says Mannarino, is a major red flag that could signal a reversal going forward:

If there’s one thing that you need to pay attention to it’s this… savage bond buying occurred today in an attempt to re-prop up the stock market and it didn’t work…

They’re trying to play a game here and it’s been working time and time again…

Without fail every single time… except for today… that has worked.

…

I am not sounding the alarm saying ‘this is it… this is the market crash.’ What I am saying is that you need to exercise caution right here… there’s a divergence going on and when you see divergences like this your eyes should open up… maybe it’s time to pull profits… maybe it’s time to hedge positions…

…

If we continue to see this action… the one thing we need to watch for is a simultaneous sell-off which will occur in the bond market and the stock market at the same time… when these things start to fall in tandem get out of the market…

…click on the above link to read the rest of the article…

The Endgame of Financialization: Stealth Nationalization

October 14, 2017

The Endgame of Financialization: Stealth Nationalization

This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel.

As you no doubt know, central banks don’t actually print money and toss it out of helicopters; they create a digital liability and use this new currency to buy assets such as bonds and stocks. Central banks have found that they can take control of the stock and bond markets by buying up as much as these markets as is necessary to force price and yield to do the central banks’ bidding.

Central Banks Have Purchased $2 Trillion In Assets In 2017. This increases their combined asset purchases above $15 trillion. A trillion here, a trillion there, and pretty soon you’re talking real money–especially if you add in assets purchased by sovereign wealth funds, dark pools acting on behalf of monetary authorities, etc.

Gordon Long and I discuss this stealth nationalization in our latest video program, The Results of Financialization: “Nationalization” (35 min):

In the old model of nationalization, governments expropriated/seized privately owned assets lock, stock and barrel. When a central state nationalized an enterprise, it took total ownership of the asset.

In today’s globalized financial world, such crude expropriation is avoided for two reasons:

1. The entire point of the dominant neoliberal / neofeudal /neocolonial model is to maintain private ownership as a means of transferring the wealth to the New Aristocracy, i.e. the financier class. Government ownership certainly conveys benefits to the some are more equal than others functionaries atop the state’s wealth-power pyramid, but it doesn’t transfer the assets’ income streams to private hands.

…click on the above link to read the rest of the article…

Tag Archives: bond market

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Post navigation

Latest Posts