The Fed's Bond Bubble Doomsday Machine

[g5000]

With interest rates being so low, investors are piling into high yield risk. Junk bonds.

Junk-Rated Borrowers Reap Rewards in a World of Negative Yields

For investors with $12 trillion of negative-rate bonds worldwide, U.S. junk securities and their 6.9 percent average yield look like a gold mine.

“They’re out there scrounging through the dumpster looking for yield,” said Karyn Cavanaugh, a strategist at Voya Investment Management, which oversees $203 billion. “When you have artificially low rates, you force people to go out and look for things that they normally wouldn’t.”

Defaults are at their highest rate since 2009. And we all remember 2009, right?

‘This Defies Reason’: Wake Up, The Defaults Have Begun - Candlesticktrade.com

“This rally has taken place despite a growing body of evidence that the credit cycle has most likely turned the corner in recent months, with defaults now beginning to materialize in sectors outside of commodity production. The number of such defaults and dollars impaired are still relatively low, and as such they remain mostly under the radar of market consensus and media, but those numbers are not negligible anymore and are rising consistently.”

At this point, we have little doubt that our original forecast for 4% ex-commodity HY default rate will be met by late 2016/early 2017. Moreover, we think there are now enough reasons to believe that defaults could rise to 5%, ex-commodities, sometime over the next year or so. Coupled with our 20% commodity HY default rate forecast we are still looking at a 7.25% aggregate HY default rate sometime around mid-2017.

 

[g5000]

The pseudo-cons will still find a way to blame the blacks and Mexicans when it all comes crashing down.

 

[g5000]

There are currently $12 trillion in nominal negative interest rate corporate and government bonds being traded worldwide.

Is this crazy, or what?

There are now $11.7 trillion worth of bonds with negative yields

Following the turmoil of the British vote to leave the European Union and the desire for the safety of government bonds, the amount has jumped to $11.7 trillion. That's a 12.5 percent increase since the end of May, according to a Fitch Ratings report Wednesday.

 

[racialreality9]

Why should any of this be crazy? Dollars aren't real, they can be created in infinite amounts, at will. All bonds can be monetized.

 

[Dale Smith]

The pseudo-cons will still find a way to blame the blacks and Mexicans when it all comes crashing down.

The thing is that you don't have a fucking clue as to why it's going to collapse or why it was meant to collapse. AEver heard of the Hegelian Dialectic?

 

[g5000]

Macaulay Duration

• t = respective time period

• C = periodic coupon payment

• y = periodic yield

• n = total number of periods

• M = maturity value

 

[g5000]

The current 30 year Treasury bond has a 21.91 duration. Unbelievable!

That means if you are holding one of those bonds, and interest rates go up by one percent, the value of your bond will drop 21.91 percent.

With just a one percent rise in interest rates!

Imagine the panic selling.

And then think about corporate bonds and their duration. Imagine the panic selling there.

Boom.

 

[g5000]

Why should any of this be crazy? Dollars aren't real, they can be created in infinite amounts, at will.

100Trillions.com

 

[EdwardBaiamonte]

Why should any of this be crazy? Dollars aren't real, they can be created in infinite amounts, at will. All bonds can be monetized.

how can they be created in infinite amounts when the Fed mandate is to control inflation? Perhaps you meant to say they could be created in infinite amounts if govt policy was to induce infinite inflation like before Hitler took over.

 

[g5000]

And so it begins.

Bond Rout Deepens After Fed Signals on Interest Rates

 

[Dale Smith]

And so it begins.

Bond Rout Deepens After Fed Signals on Interest Rates

Just like I said it would........(snicker)

 

[EdwardBaiamonte]

There are currently $12 trillion in nominal negative interest rate corporate and government bonds being traded worldwide.

Is this crazy, or what?

can you say why you feel its crazy?

 

[g5000]

Here begins the attempt to unwind: Federal Reserve likely to begin cutting back $4.5 trillion balance sheet this year

Time to light a candle, cross your fingers (and toes), fondle your rabbit's foot, etc.

 

[EdwardBaiamonte]

Time to light a candle, cross your fingers (and toes), fondle your rabbit's foot, etc.

why????? the plan was always to cut back balance sheet?????

 

[g5000]

Time to light a candle, cross your fingers (and toes), fondle your rabbit's foot, etc.

why????? the plan was always to cut back balance sheet?????

And yet they exploded it instead.

See the first several posts in this topic to understand why the unwinding has huge perils.

 

[EdwardBaiamonte]

Time to light a candle, cross your fingers (and toes), fondle your rabbit's foot, etc.

why????? the plan was always to cut back balance sheet?????

And yet they exploded it instead.

See the first several posts in this topic to understand why the unwinding has huge perils.

they don't have to unwind quickly, they can do it as economy warrants. Do you understand now??

 

[g5000]

Time to light a candle, cross your fingers (and toes), fondle your rabbit's foot, etc.

why????? the plan was always to cut back balance sheet?????

And yet they exploded it instead.

See the first several posts in this topic to understand why the unwinding has huge perils.

they don't have to unwind quickly, they can do it as economy warrants. Do you understand now??

See post 5, fool.

And note that it was $3 trillion back then and is $4.5 trillion now. So the danger is even greater.

 

[EdwardBaiamonte]

Time to light a candle, cross your fingers (and toes), fondle your rabbit's foot, etc.

why????? the plan was always to cut back balance sheet?????

And yet they exploded it instead.

See the first several posts in this topic to understand why the unwinding has huge perils.

they don't have to unwind quickly, they can do it as economy warrants. Do you understand now??

See post 5, fool.

And note that it was $3 trillion back then and is $4.5 trillion now. So the danger is even greater.

where is danger??? Economy has been steady for 9 years????? Do you have any idea???

 

[g5000]

$9 trillion of developed world debt is now trading at negative yields.

 

[g5000]

A third of global government debt now has negative interest rates