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With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict

July 10, 2016

With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict

Friday’s unprecedented surge to all time highs in both stock and treasury prices, has got analysts everywhere scratching their heads: which is causing which, and what happens if there is a violent snapback in yields like for example the infamous bund tantrum of May 2015.

But first, the question is what exactly will pause what the WSJ calls the “Black Hole of Negative Rates” which is dragging down yields everywhere.  Here is how the WSJ puts it:

The free fall in yields on developed-world government debt is dragging down rates on global bonds broadly, from sovereign debt in Taiwan and Lithuania to corporate bonds in the U.S., as investors fan out further in search of income. Yields in the U.S., Europe and Japan have been plummeting as investors pile into government debt in the face of tepid growth, low inflation and high uncertainty, and as central banks cut rates into negative territory in many countries. Even Friday, despite a strong U.S. jobs report that helped send the S&P 500 to a near-record high, yields on the 10-year Treasury note ultimately declined to a record close of 1.366% as investors took advantage of a brief rise in yields on the report’s headlines to buy more bonds.

As yields keep falling in these haven markets, investors are looking for income elsewhere, creating a black hole that is sucking down rates in ever longer maturities, emerging markets and riskier corporate debt.

“What we are seeing is a mechanical yield grab taking place in global bonds,” said Jack Kelly, an investment director at Standard Life Investments. ” The pace of that yield grab accelerates as more bond markets move into negative yields and investors search for a smaller pool of substitutes.”

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

Even The Average Joe Gets It: “They’re Winding Us All Up For A Minsky Moment”

February 24, 2016

Even The Average Joe Gets It: “They’re Winding Us All Up For A Minsky Moment”

With global central bank policy in disarray following the Fed’s now admitted “policy error” of tightening just as the US and global economy are heading for recession, while the rest of the world desperate to cut to ever more negative rates, not to mention Japan’s abysmal foray into NIRP, there was hope that this weekend in Shanghai the G-20 would “bail us out” and unveil some miraculous rescue for risk takers at least one more time.

However, as Jack Lew explained earlier today, this won’t happen, leaving traders in a state of limbo and cognitive shock – after all if not even the central banks have your back, then who does?

Still something has to happen, or otherwise the world will careen into a deflationary, NIRP collapse and the Fed’s 25bps “recession buffer” will have absolutely no impact before the US itself plunged into economic contraction.

One proposal comes from BBG trader Richard Breslow, who like most others, is sick and tired of the constant market manipulation, endless central bank jawboning, and who like us, is hoping that one day markets will once again be free and efficient, not for any other reason but because as Breslow notes, even the average Joe gets it: “if you really want to see people spend and invest there has to be some belief this won’t all end in tears.”

His full note:

Parole For Prisoners With A Dilemma

If the U.S. wants to really do some good at the G-20, they should try to get their heads around the concept of embracing a stronger U.S. dollar. That would be showing a commitment to global leadership, both economic and moral, which has been long absent. It’s a bet on a stronger global economic tide raising all boats.

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

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