Analysis Topic: Interest Rates and the Bond Market
The analysis published under this topic are as follows.
Wednesday, October 09, 2019
The Later United States Empire / Interest-Rates / US Debt
By: Richard_Mills
In 1917, the United States created the federal debt limit (or ceiling) to make it easier to finance World War One, essentially allowing Congress to borrow money to pay for the war effort by issuing bonds.
By 1939 with World War Two looming, Congress passed the first aggregate debt limit, but it meant little. For nearly 60 more years the debt ceiling caused nary a ripple, until 2011 when Congress delayed approval of the annual budget, nearly causing a government shutdown. Then a minority in the House of Representatives, Republicans balked at the $1.3 trillion deficit, the third largest in history, so Democrats suggested a $1.7 billion cut in defense spending, since the war in Iraq was winding down. The GOP wouldn’t agree to that, instead offering $61 billion in non-defense cuts including Obamacare. Finally the two sides agreed on $81 billion worth of cuts.
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Monday, October 07, 2019
Yield Curve Inversion Current State / Interest-Rates / Inverted Yield Curve
By: Nadeem_Walayat
An inverted yield curve is basically when the yield on 2 year US government bond exceeds the 10 year US bond yield as worried investors opt to disinvest from risky assets in favour of safer longer term government bonds thus driving down long bond yields below that of nearer term bonds. And the closer the yield curve gets towards towards an inversion the greater the likelihood for a future recession. So far the yield curve inversion has successfully forecast the last 3 economic downturns in the United States. Though the YCI has proved less reliable elsewhere, especially for Australia.
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Monday, September 30, 2019
Watching Paint Dry in the Repo Market Part 2 / Interest-Rates / US Interest Rates
By: Michael_Pento
The Fed has now begun to pave the way for a return to Quantitative Easing. The reason for this was the recent spike in borrowing rates in the Repo market. At his latest press, Chair Powell said this about the spike in the Effective Fed Funds and Repo rates:“Going forward, we’re going to be very closely monitoring market developments and assessing their implications for the appropriate level of reserves. And we’re going to be assessing the question of when it will be appropriate to resume the organic growth of our balance sheet… It is certainly possible that we’ll need to resume the organic growth of the balance sheet sooner than we thought.”
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Thursday, September 26, 2019
The Disaster of Negative Interest Rates / Interest-Rates / Negative Interest Rates
By: Ellen_Brown
The dollar strengthened against the euro in August, merely in anticipation of the European Central Bank slashing its key interest rate further into negative territory. Investors were fleeing into the dollar, prompting President Trump to tweet on Aug. 30:
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Tuesday, September 24, 2019
Watching Paint Dry in the Repo Market / Interest-Rates / US Interest Rates
By: Michael_Pento
The world of fixed income trading has been extremely volatile lately. Rates have not only spiked in the Treasury market but borrowing costs in money markets have also become extremely disconcerting. The residual effects from Quantitative Tightening, which ended just this past July, are wreaking havoc on the liquidity in bond markets. Ironically, the Fed’s erstwhile rate hikes and its QT program--what Fed Chairs described as running in the background and like watching paint dry—turned out to be the catalyst for a freeze in the junk-bond market in December of 2018 and is now causing major disruption in the Repo market.
This illustrates clearly the tenuous nature of the bond bubble and that it will someday implode like a supernova---sending yields skyrocketing on a long-term basis. However, it most likely does not yet mark the start of the epoch debt bubble debacle that is in store. We will need a surge of inflation expectations, or the credit markets to shut down on a protracted basis for that to occur. We are moving closer to that eventuality every day.
Wednesday, September 11, 2019
Now That Bonds Have Pulled Back As Expected, Maybe We Can Set Up Another Rally / Interest-Rates / US Bonds
By: Avi_Gilburt
I think this market has been providing many investors with whipsaw and head aches, which has also caused much head scratching. (And, yes, that little itch may be telling you something.)
Back in November of 2018, no one even considered the possibility of a bond rally because the Fed was raising rates. And, recently, no one even considered the possibility of any type of top in bonds because the Fed is now lowering rates. Has anyone considered that maybe the Fed does not control the bond market? (See my prior articles for thoughts on this).
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Thursday, September 05, 2019
Here’s How You Build a Bond Portfolio That Works / Interest-Rates / US Bonds
By: Jared_Dillian
When you invest in bonds, do you buy individual bonds or bond funds?
- Unless you have a lot of money, you should probably buy bond funds.
- And even if you do have a lot of money, you should probably buy bond funds.
Let me explain.
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Tuesday, September 03, 2019
The Central Banks’ Time Machine is Broken / Interest-Rates / Central Banks
By: Michael_Pento
Last week we wrote about how global central banks have created an economic time machine by forcing $17 trillion worth of bond yields below zero percent, which is now 30% of the entire developed world’s supply. Now it’s time to explain how the time machine they have built has broken down. In parts of the developed world, individuals are now being incentivized to consume their savings today rather than being rewarded for deferring consumption tomorrow. In effect, time has been flipped upside down. These same central bankers then broke that time machine by guaranteeing investors they will never cease printing money until inflation has been firmly and permanently inculcated into the economy.
They have printed $22 trillion worth of new credit in search of this goal since 2008. This figure is still growing by the day. But by doing so, they have destroyed Capitalism. Freedom is dying; not by some Red Army but by central banks.
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Tuesday, September 03, 2019
Looking For A US Bond Market Top / Interest-Rates / US Bonds
By: Avi_Gilburt
Those that have followed my bond analysis since November have made quite a bit of money. While the stock market is basically in the same place it was back in the early fall of 2018 when we went long bonds, TLT has rallied from our entry in the 112/113 region in TLT to a high of almost 149.
Let me take a moment to recap my recent history and perspective on bonds. For those that followed our work over the years, you would know that we called for a top to the bond market on June 27, 2016, with the market striking its highs within a week of our call. Right after that top call, TLT dropped 22%, until we saw the bottoming structure develop in late 2018.
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Sunday, August 25, 2019
If You Don’t Understand Bonds, You Don’t Understand Investing / Interest-Rates / US Bonds
By: Jared_Dillian
The first thing I read about investing wasn’t actually a book. It was a pamphlet that I got somewhere, 23 years ago.
The pamphlet said you should invest in bonds as well as stocks. It said bonds went up when interest rates went down, and vice versa. It didn’t go into any more detail.
Well, I did what the pamphlet said, even though I had no idea what the hell I was doing, and I wouldn’t figure out for a few more years why it was a good idea.
I suspect a lot of people don’t take that advice on diversification simply because they don’t know what the hell they are doing.
Friday, August 23, 2019
The Central Bank Time Machine / Interest-Rates / Central Banks
By: Michael_Pento
We are now witnessing the death throes of the free market. The massive and record-breaking global debt overhang, which is now $250 trillion (330% of GDP), demands a deflationary deleveraging depression to occur; as a wave of defaults eliminates much of that untenable debt overhang. The vestiges of the free market are trying to accomplish this task, which is both healthy and necessary in the long term—no matter how destructive it may seem during the process. Just like a forest fire is sometimes necessary to clear away the dead brush in order to promote viable new growth. However, the “firemen” of today (central banks) are no longer in the business of containing wildfires, but instead proactively flooding the forest with a deluge of water to the point of destroying all life.
In point of fact, the free market is no longer being allowed to function. Communism has destroyed capitalism, as the vital savings and investment dynamic has been obliterated. Central banks have decided that savers deserve no return on their so-called risk-free investments and have hence forced into existence humongous bubbles in junk bonds and equity markets worldwide. They have destroyed the savings and investment dynamic and turned time backward.
Friday, August 23, 2019
Seven Key Words That Explain "Stupidly High" Bond Market Prices / Interest-Rates / International Bond Market
By: Dan_Amerman
The front page of the August 16th Wall Street Journal contains the information found in the remarkable graph below.
As can be clearly seen, year to date around the world - including in Austria, Japan, Germany, and the U.S. and the U.K. - we are in practice seeing some of the most astonishing short-term returns ever seen when it comes to long and ultralong bonds.
The title of the WSJ article is "Forget Stocks. Ultralong Bonds Are The Real Gamble", and the author refers to the current bond price levels around the world as being "stupidly high". If we look at the dominant investment theories from prior decades, which the great majority of financial planners, financial journalists and retirement investors still treat as being the gospel wisdom for today - then he makes some very strong points about just how ridiculous those prices are, and why they shouldn't exist.
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Thursday, August 22, 2019
Economist Lays Out the Next Step to Wonderland for the Fed / Interest-Rates / US Interest Rates
By: Gary_Tanashian
Mr. Steven Ricchiuto, he of a Masters in Economics from Columbia, has laid out the proper plan for the Federal Reserve in this oh so noisy environment in which an unassuming and fairly quiet man is trying to tune out a personal bully on Twitter, tune out the stock market’s daily whipsaw and do what he perceives to be the right thing.
Today, the academic named above throws in with Trump and politely harangues Chairman Powell thusly in an open letter. You can read it by hitting the graphic…
https://www.marketwatch.com/story/the....
Stagflation this, Volcker that, deflation the other thing… blah blah blah. But then he gets to the interesting parts, the money parts. Of the post-Volcker era he states…
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Tuesday, August 20, 2019
The Tip of the Debt-Bomb Iceberg / Interest-Rates / US Debt
By: Harry_Dent
This week I wanted to bring your attention to a key development. And while overlooked by many, is part of the trigger that will set off the next financial crisis.All eyes were focused intently this week on US Treasury yields. And a lot of people might have missed what I believe will prove to be a very big event – after the dust from the next big implosion finally settles.
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Friday, August 16, 2019
When the US Bond Market Bubble Blows Up! / Interest-Rates / US Bonds
By: Gary_Tanashian
Amazing isn’t it? It was only back in H2 2018 when everybody but you (because you are as smart as I think you are or because you read NFTRH or nftrh.com) and me was unbelievably bearish about the TREASURY BOND BEAR MARKET!!!
Today… not so much. The herd is absolutely pile driving bonds right now.
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Thursday, August 15, 2019
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions / Interest-Rates / Negative Interest Rates
By: Dan_Amerman
The discussion of negative interest rates in the United States has now officially gone mainstream, with the front page of the August 12, 2019 print edition of the Wall Street Journal carrying a prominent discussion of the possibility.
Most of the article consists of various institutional investors talking about why this could be a real possibility. However, as will be explored herein, there were three glaring omissions in the article.
1) What the real source of the negative interest rates would be.
2) The historically unprecedented profits that would be created by such a move.
3) Who those unprecedented profits would mostly go to (and it isn't to the average investor).
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Wednesday, August 14, 2019
You Have to Buy Bonds Even When Interest Rates Are Low / Interest-Rates / US Bonds
By: Jared_Dillian
Interest rates are currently low.That is by far the biggest concern among bond investors. They are drowning in worry about low interest rates and their effect on bonds. So let’s address that.
Saying interest rates are currently low is another way of saying that bonds are expensive—which makes people not want to invest in bonds. Fair enough.
Stocks are also expensive—but you invest in those!
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Sunday, August 11, 2019
Gold and the Bond Yield Continuum / Interest-Rates / US Bonds
By: Gary_Tanashian
Have you heard the news? US Treasury bonds are sky rocketing as it turns out there is no inflation amid a global central bank NIRP-a-thon and race to the currency bottom. Going the other way, our 30yr Treasury yield Continuum is burrowing southward.
If you check out yesterday’s post you’ll see proof that the 2018 NFTRH view that people should tune out the bond experts instructing BOND BEAR MARKET!! was 100% on target.
But today the din is coming from the opposite pole. Everywhere you look on the financial websites it’s now about tanking yields, decelerating growth, trade war damage and deflation. Here is the 30 year bond yield (TYX), which is front and center in this hysteria (click the charts below for the clearest view). That is one impulsive looking drop.
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Saturday, August 10, 2019
US Corporate Debt Is at Risk of a Flash Crash / Interest-Rates / Corporate Bonds
By: John_Mauldin
The world is awash in debt.
While some countries are more indebted than others, very few are in good shape.
The entire world is roughly 225% leveraged to its economic output. Emerging markets are a bit less and advanced economies a little more.
But regardless, everyone’s “real” debt is likely much bigger, since the official totals miss a lot of unfunded liabilities and other obligations.
Debt is an asset owned by the lender. It has a price, which—like anything else—can go up or down. The main variable is the lender’s confidence in repayment, which is always uncertain.
Saturday, August 10, 2019
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly / Interest-Rates / US Bonds
By: QUANTO
The sceptre of recesion is growing worldwide. German industrial production registered its biggest annual decline in almost a decade when it reported numbers in June. We covered it here The result was country’s flattest yield curve since the financial crisis.