Bond Bubble Expectations

Daily Business Report
Article Archives
US Economic Forecast for 2012 and the Election Year Cycle
Shop the Local Merchant Economy
Right to Work vs Union State Economies
Rational Tariffs Lower Irrational Trade Deficits
International Business - Davos Style
Banking, Housing and Mortgages
David Stockman's Viewpoint on the Obama Budget Disaster
Regulations Harm Small Business and Protects Corporations
Gas Prices as an Indicator of Energy Costs
Governments Acting as Venture Capitalists
College Education Economics
Industrial Wind and the Production Tax Credit
Medicare and the Ryan Budget
U.S. Corporate Tax Rate Consequences
Corporate Spying and Intellectual Theft
The Foolish Exporting Natural Gas Policy
A Matter of Time for a VAT Tax
Big vs Small Bank Loans
Bankruptcy Trends in the Post Meltdown Era
Money Center Banks and Stricter Financial Oversight
Electric Power Generation under NYS Article X
Growth in the National Debt
Advantages of Chinese Trade Policy
Unemployment as a Lifestyle
Immigration Hurts American Employment
Bank for International Settlements on Big Banks
Small Business Assault from Obamacare
Compound Interest and the Debt Bubble
The Federal Centralization Economy
Parking Offshore Profits Hurt the Domestic Economy
The Record of Olympic Economics
Financial Algorithmic Trading
Goldman Sachs Above the Law
The MF Global Magical Mystery Tour
Destroying Internet Freedom by Taxation
The Permanent Unemployment Economy
Jackals of Jekyll Island - Federal Reserve Audit
QE3 Blowing Up the Debt Bubble
Riots Over Rotten Apple Mania
Gap Between College Costs and Inflation
Counterproductive Minimum Wage Mandates
Derivative Meltdown and Dollar Collapse
Central Banks Game Plan: One World Currency
European Commission Single Supervisory Mechanism
Lunacy of FEMA Hurricane Insurance Subsidy
Taxmageddon Holding Hands while Jumping Off the Cliff
The Direction of Equities in the Obama Economy
Is it FAIR to Tax the Rich out of Business?
California Dreaming: Bankruptcy, Pensions and Taxes
Pay Differential - Private Sector and Federal Government
Long History of HSBC Money Laundering
Swan Dive of 2013 Economy
Federal Reserve May Pause Quantitative Easing
The Economics of Sequestration
The state-owned Bank of North Dakota
Chinese Takeover with Free Trade Zones
Low Interest Rates Impoverish Savers
Bond Bubble Expectations
Currency Wars - Race to the Bottom
Government Subsidizes and Bankrupt Companies
Economics of Gun Control
Refuse to Buy or Sell with the Federal Government
The Cyprus Great Bank Robbery
Keystone Pipeline Blockage
Move Over IMF for the BRICS Development Bank
Obama Budget Proposes Cuts to Social Security and Medicare
The Risk and Reward of Bitcoins
Farm Supports and Social Welfare
Internet and Sale Taxes Dialectic
The Warren Buffett House of Cards
IRS as a Political Hit Squad
Revenue Budget Projections
Google and the NSA Connection
The Roubini - Faber Debate
Hydrofracking Boom or Bust
Goldman Sachs - first learn, then earn and serve
The Federal Reserve after Ben Bernanke
Implications of a Pyrrhic Real Estate Rebound
The New Normal: Part-Time Employmentyment
U.S. & Europe Trade Deal Honeymoon
Detroit City Bankruptcy Blues
J P Morgan and Commodity Manipulation
Strange Business Success Ventures
Business of Evangelism Religion
NFL Marketing Machine
Privacy Gone on Offshore Assets
Chinese Banks Quasi Government Institutions
Forecasts of a Doomed Economy
Financial Meltdown Five Years After
Corporate Profits and Worker Unemployment
Renminbi Soon to Be a Reserve Currency
Rehypothecation of Collateral
IMF Proposal to Tax Bank Deposits
Transfers excluded, JP Morgan Chase is Wired
Insurance Companies Profit from Obamacare
Climate Change by Executive Order
Economics of Non-governmental Organizations
Why Business Franchising is a Bad Deal
The Business of the Christmas Season
China Becomes Largest Trading Nation
Obamacare as a Jobs Killer
Does a 100 Trillion Debt Total Matter?
Underground Commerce is the Real Economy
Technology and the Future of Jobs
The Japanese Debt Economy
Individual Wealth in Perspective
Inevitability of Financial Bubbles
Russian Sanctions Backfire
Is the Dollar and Equities Ready to Crash?
Economic Reality of a Wealth Tax
How stable is the Bond Market?
Are International Stocks Safer than U.S. Equities?
David A. Stockman - The Great Deformation
Chinese and Japanese Deflationary Economies
Euro Crisis Deepens
Russia's SWIFT Settlement Alternative
The Swiss will not have more EU QE
Business of Global Warming Fraud
Economics of NYS Southern Tier Secession
Fear of IRS Tax Audits Diminish
Where is Global Economic Growth?
Government's share of minimum wage increase
Economic Growth Is Impossible
Replace the Business Cycle with Permanent Poverty
Who benefits from the lifting of Iranian sanctions?
Who Wins in a Currency Devaluation War?
Labor Day when there is no work
Municipal Bankruptcies and more on the way
Undeniable Social Security Demographics
Grinch that stole Christmass
Business Mergers Soar in 2015
The Chinese Market Crash
Driverless Vehicles Powered by Artificial Intelligence
U.S. Banks Ready for Negative Interest Rates?
International Trade Sinks with the Baltic Dry Index
SunEdison Green Power Bankruptcy Inevitability
Another Record Collection from Federal Taxes
Absurd Valuations on Unprofitable Tech Stocks
BATR Index
Forbidden History
Reign of Terror
Stuck on Stupid
Totalitarian Collectivism
Global Gulag
Inherent Autonomy
Radical Reactionary
Strappado Wrack
View from the Mount
Solitary Purdah
Dueling Twins
Varying Verity
911 War of Terror


Bond Bubble Expectations

Bonds are loans that have the expectation of payback with interest. Government bonds are viewed as the safest financial instrument since the primary fiscal obligation of the state is to honor the terms of their own notes. However, in the fevered climate of currency wars among central banksters, the security factor of capital repayment is rapidly coming into question. As interest rates rise, the economic value of the bond diminishes. This inverted normal relationship is the essential dynamic of lending money with the purchase of Treasury Bonds. So what is all the talk about a bond bubble and likelihood that it will destroy your underwriting capital?

Bloomberg Businessweek warns in the article,
The Rising Bubble in Bond-Bubble Chatter.

"An asset price bubble is when the expectation that the price can only go higher forms the only rationale for purchase," remarked BlackRock’s (BLK) bond honcho Jeffrey Rosenberg Thursday at the CFA Society of Los Angeles’s Economic & Investments Forecast Dinner, at which the "wherefore bond bubble" discussion dominated. "But the main motivation of investors for buying fixed income is the opposite of typical bubbles—the fear of losing money rather than the greed of potential profit has fueled the historic shift of assets into fixed income."

Just how safe is your money when you are holding T-Bonds? The U.S. Treasury wants you to believe that no other form of currency has the protection of first guarantee of the full faith and credit of your own government. Well, the mere questioning of this mythical assurance breeds deep distrust and instability of confidence into the entire fiscal system.

Morningstar offers an assessment in
The Bond Bubble Threat, which on the surface is very sensible.

"To understand the implications of where we are, consider the history of the benchmark 10-year Treasury note. From 1900 to 2012, the average interest rate (yield) was 4.99% (often quoted as 5%). On Jan. 30, 2013, the yield was 1.99%, well below the long-term average. The prime interest rate, which the Fed has a role in setting, is 3.25%. It is the break-even rate for banks pricing loans.

When the performance of an asset class runs substantially above or below a long-term average, the odds increase that at some point performance will move back toward the long-term average. It may take a while for the interest rate on 10-year Treasury paper to re-approach 5%, but at some point, it will. As interest rates creep up, we see a shift away from fixed debt instruments to variable rate paper, stocks and various inflation hedges."

Regretfully, when was the last time that economic fundamentals applied to the money debasement manipulations of the Federal Reserve? No doubt, a day of reckoning will come if market principles are allowed to work out their natural balance. However, the moneychangers design a fantasyland of monetary assessment that distort and prop up the price of the "Reserved Currency".

John Plender writes in the Financial Times,
Central bank hot air pumps up bond bubble, presents an analytical evaluation of worth in the current bond values.

"In the fixed interest sector something irrational is undoubtedly going on, but it is less a matter of exuberance than desperation in the pursuit of yield. In higher yielding parts of the market prices are out of touch with default risk.

Despite the oft-heard central bankers’ refrain that bubbles are impossible to identify until after they have been pricked, historical comparisons leave little doubt that this is a bubble – one, moreover, to which central banks have contributed their fair share of hot air. It is rare indeed for investors to pay a multiple of more than 50 times for the income stream on a 10-year Treasury bond."

Nevertheless, this inflated bubble just keeps expanding from the unlimited flow of repurchases by the Federal Reserve of Treasury debt. What else is left to do, when the global financial markets are reluctant to buy into the next round of T-Bill offerings? Indefinite aggressive QE is here to stay as long as the need to roll over the debt exists. This view is shared in the latest report,
Treasury Bond Bubble Will Not Pop, Fed Will Simply Increase QE. Guru Jim Sinclair offers the conventional-politicized viewpoint that the printing press will just keep running.

"Essentially Sinclair is stating that interest rates will continue to manipulated at an artificially low level by uneconomic buying of T-bonds by the Federal reserve governor typing on a keyboard, and that the pace of QE will keep pace with the pace of the US budget deficit/ funding gap, until which point the US dollar faces a collapse in the confidence of the currency itself."

Of course, the operative circumstance is when will the collapse of the Dollar currency come? The interest rates charged to purchase T-Bonds will rise, when the Fed decides that the underreported rate of inflation can no longer be concealed from institutional transactions. When the Street panics over, the artificially low levels on Treasury Bonds rates, and refuse further purchases, the international exchange rate of the Dollar will plummet.

The global rush to devalue currencies is in full force and over time will affect the options that the Fed has in their toolbox. This chicken and egg dilemma will test the legal tender equation to its core. While the government can coerce the acceptance of a failing currency to be used as money, the same cannot be inferred about the purchasing power of T-Bonds.

The linkage between the underlying capital used to purchase the government note and the final return received for holding the bond until maturity has a profound disconnect. Selling your T-Bonds is a wise practice even if an imminent bubble is not ready to blow.

The harm to the financial markets from another precipitated house of cards should scare everyone. Expectations have a funny way of influencing financial results more often than sound evaluations. The prospect of a default by the Treasury is embedded, even under synthetically low interest rates. Just how long will this anticipation hold true?

James Hall – February 13, 2013

Discuss or comment about this essay on the BATR Forum

a free speech forum open to the public

This site  The Web 


tumblr page counter