Home » Posts tagged 'bond yields' (Page 2)
Tag Archives: bond yields
ECB, Monetarism and a Greek Half-Decade
ECB, Monetarism and a Greek Half-Decade
Greece really should not matter, at all, outside of the tragic plight of the Greeks themselves. You’ll see that message echoed particularly inside the US where the status quo takes a contradictory turn toward reasonableness in order to justify further what isn’t. This is all about asset prices and how they have been so skewed almost everywhere that when one part of that systemic imbibing threatens to pull back the curtain the rest works overdrive to convince that it doesn’t matter.
Just fourteen months ago, then-Prime Minister of Greece, Antonis Samaras, went on Greek television and confidently proclaimed, “Today, Greece took one more decisive step to exit the crisis. Confidence in our country was confirmed by the most objective judge – the markets.” Going further, then-Deputy Prime Minister Evangelos Venizelos objected to any other interpretation, “The bond issue proves the debt is sustainable, otherwise the markets wouldn’t have bought it.”
Obviously, those were political statements intended to send a political message in that the “objective” market was on the side of that current Greek political makeup and the “austerity” track into which they proclaimed to be amalgamated, inextricably within the euro currency. Under rational expectations theory, of course, the price with which the Greeks floated that bond was believed to be “correct” and thus efficient. The 4.95% yield at the auction, 20 times oversubscribed, certainly seemed to suggest that it was “market clearing” in at least that respect.
The problem with all of that view is apparent right now. The 5-year bond, after having a pretty good week last week with all the false deal rumors, is yielding this morning almost 23%. The losses embedded in that yield and its price were uniquely predictable, which is what is so damning about Greece as it relates to everything outside of the “small country on the Aegean.”
…click on the above link to read the rest of the article…
When Bonds Go Kaboom!
When Bonds Go Kaboom!
We’re not the only ones giving Neanderthal advice about holding on to physical cash. British newspaper the Telegraph reports:
The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress. Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds for Fidelity, is concerned that a “systemic event” could rock markets, possibly similar in magnitude to the financial crisis of 2008…
The best strategy to deal with this, he said, was for investors to spread their money widely into different assets, including gold and silver, as well as cash in savings accounts. But he went further, suggesting it was wise to hold some “physical cash,” an unusual suggestion from a mainstream fund manager.
The Fuse Is Lit
The markets seem to be in wait-and-see mode. Yesterday, we were waiting to see what happens in Greece. Today, we wait to see what happens in the bond markets. We watch them like we watch a stick of dynamite. For a long time, it might sit there… silent… still…
Then all of a sudden – kaboom!
At the end of January, it looked as though bond yields had finally found their bottom. With $5 trillion of sovereign debt trading at negative yields, bond prices began to fall. And yields, which move in the opposite direction to prices, started to rise.
Not for the first time did we think: The fuse is lit!
We were 33 years old when this bond market made its last turn. The yield on the 10-year Treasury bond hit a high of almost 15% in 1982. Yields have been trending downward ever since. If we had only imagined what would happen next!
…click on the above link to read the rest of the article…
The Economic Depression In Greece Deepens As Tsipras Prepares To Deliver ‘The Great No’
The Economic Depression In Greece Deepens As Tsipras Prepares To Deliver ‘The Great No’
As Greece plunges even deeper into economic chaos, Greek Prime Minister Alexis Tsipras says that his government is prepared to respond to the demands of the EU and the IMF with “the great no” and that his party will accept responsibility for whatever consequences follow. Despite years of intervention from the rest of Europe, Greece is a bigger economic mess today than ever. Greek GDP has shrunk by 26 percent since 2008, the national debt to GDP ratio in Greece is up to a staggering 175 percent, and the unemployment rate is up above 25 percent. Greek stocks are crashing and Greek bond yields are shooting into the stratosphere. Meanwhile, the banking system is essentially on life support at this point. 400 million euros were pulled out of Greek banks on Monday alone. No matter what happens in the coming days, many believe that it is now only a matter of time before capital controls like we saw in Cyprus are imposed.
Over the past several months, there have been endless high level meetings over in Europe regarding this Greek crisis, but none of them have fixed anything. And even Jeroen Dijsselbloem admits that the odds of anything being accomplished during the meeting of eurozone finance ministers on Thursday is “very small”…
Some officials believe Thursday’s meeting of eurozone finance ministers will be perhaps the last chance to stop Greece sliding into default and towards leaving the euro.
However the president of the so-called Eurogroup, Jeroen Dijsselbloem, said the chance of an accord was “very small”.
And it is certainly not just Dijsselbloem that feels this way. At this point pretty much everyone is resigned to the fact that there is not going to be a deal any time soon. The following comes from Reuters…
…click on the above link to read the rest of the article…
Guess What Happened The Last Time Bond Yields Crashed Like This?…
Guess What Happened The Last Time Bond Yields Crashed Like This?…
If a major financial crisis was approaching, we would expect to see the “smart money” getting out of stocks and pouring into government bonds that are traditionally considered to be “safe” during a crisis. This is called a “flight to safety” or a “flight to quality“. In the past, when there has been a “flight to quality” we have seen yields for German government bonds and U.S. government bonds go way down. As you will see below, this is exactly what we witnessed during the financial crisis of 2008. U.S. and German bond yields plummeted as money from the stock market was dumped into bonds at a staggering pace. Well, it is starting to happen again. In recent months we have seen U.S. and German bond yields begin to plummet as the “smart money” moves out of the stock market. So is this another sign that we are on the precipice of a significant financial panic?
Back in 2008, German bonds actually began to plunge well before U.S. bonds did. Does that mean that European money is “smarter” than U.S. money? That would certainly be a very interesting theory to explore. As you can see from the chart below, the yield on 10 year German bonds started to fall significantly during the summer of 2008 – several months before the stock market crash in the fall…
So what are German bonds doing today?
As you can see from this next chart, the yield on 10 year German bonds has been steadily falling since the beginning of last year. At this point, the yield on 10 year German bonds is just barely above zero…
…click on the above link to read the rest of the article…
The End of the Great Debt Cycle
The End of the Great Debt Cycle
“It’s the end of the great debt cycle,” says hedge fund manager Ray Dalio of Bridgewater Associates, taking the words out of our mouth.
Bond fund manager Bill Gross adds context:
In the past 20 to 30 years, credit has grown to such an extreme globally that debt levels and the ability to service that debt are at risk. […] Why doesn’t the debt supercycle keep expanding? Because there are limits.
Neither Mr. Dalio nor Mr. Gross nor we know precisely where those limits are. But the Europeans and the Japanese are rushing toward them.
A Poke in the Eye for Lenders
In Europe, bond yields are lower than they’ve ever been. Between $2 trillion and $3 trillion in sovereign and corporate bonds now trade at negative nominal yields. We don’t need to tell you that it is unnatural and perverse for lenders to accept a poke in the eye for giving up their valuable savings. But that’s just part of the perversity of the present system – no real savings are involved. The money never existed in the first place. Getting a negative yield seems almost appropriate, if nevertheless incomprehensible.
Today, banks create “money” from thin air, in the form of new deposits, when they make loans.
As our friend Richard Duncan explains in his book The New Depression: The Breakdown of the Paper Money Economy, by the turn of the new millennium the reserve requirement – whereby banks are forced to hold some cash or gold in reserve against new loans – was so low that it played “practically no role whatsoever in constraining credit creation.”
…click on the above link to read the rest of the article…
How Much Longer Can Central Banks Push Bonds to Absurdity?
How Much Longer Can Central Banks Push Bonds to Absurdity?
Central banks around the world have fallen all over each other lowering their benchmark interest rates. On Tuesday, the Reserve Bank of Australia was the latest, cutting its cash rate to an all-time low of 2.25%. It didn’t mince words: “A lower exchange rate is likely to be needed to achieve balanced growth in the economy.” A rare admission of escalating the currency war. The Aussie dollar immediately swooned.
Two weeks ago, the Bank of Canada suddenly cut its overnight interest rate by 25 basis points. Other central banks have chimed in. Japan’s rate has been at zero for years. “Negative deposit rates” have infected a number of central banks, including the ECB.
In this environment, the Fed is talking about raising rates from zero to next to zero, but the markets are not following its hints and are trying to force it to back off.
Ten-year government bond yields in Japan and Germany dropped closer to zero, before bouncing off in a sharp rally to 0.39% and 0.31% respectively. This is called the “Japanification of Germany.”
Back in August 2013, when 10-year JGBs still yielded around 0.8%, I wrote, Why I’m Deeply Worried About Japan – And Why Betting On The Collapse Of JGBs Is A Horrible Idea, which has become a leitmotif. Japan’s fiscal situation has deteriorated since, but JGBs have risen and yields have dropped, with shorter maturities sporting “negative” yields. JGB shorts have been kneecapped. Inflation is 2.4% as measured by the all-items index, and 3.1% for goods. Financial repression has become the rule.
…click on the above link to read the rest of the article…
