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Tag Archives: bond market

The Consequences Of ‘Transitory’

Europe’s QE, as noted this weekend, is off to a very rough start. In the bond market and in inflation expectations, the much-ballyhooed relaunch of “accommodation” is conspicuously absent. There was a minor back up in yields between when the ECB signaled its intentions back in August and the few weeks immediately following the actual announcement. Other than that, and that wasn’t much, you wouldn’t have known QE is already back on the table. It barely registered,...

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ISM Spoils The Bond Rout!!! Again

For the second time this week, the ISM managed to burst the bond bear bubble about there being a bond bubble. Who in their right mind would buy especially UST’s at such low yields when the fiscal situation is already a nightmare and becoming more so? Some will even reference falling bid-to-cover ratios which supposedly suggests an increasing dearth of buyers. Bid-to-cover, however, is irrelevant. That only tells you about one part of the buying equation, the number...

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ISM Spoils The Bond Rout!!!

With China closed for its National Day Golden Week holiday, the stage was set for Japan to steal the market spotlight. If only briefly. The Bank of Japan announced last night that it had had enough of the JGB curve. The 2s10s very nearly inverted last month and BoJ officials released preliminary plans to steepen it back out. Japan’s central bank says that it might refrain from buying JGB’s at the long end. This is upside down from when YCC was first attached to QQE...

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Japan: Fall Like Germany, Or Give Hope To The Rest of the World?

After trading overnight in Asia, Japan’s government bond market is within a hair’s breadth of setting new record lows. The 10-year JGB is within a basis point and a fraction of one while the 5-year JGB has only 2 bps to reach. It otherwise seems at odds with the mainstream narrative at least where Japan’s economy is concerned. Japan JGB, Jan 2014 - Jul 2019 - Click to enlarge Record lows in Germany, those seem to make sense. By every account, the German...

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Germany’s Superstimulus; Or, The Familiar (Dollar) Disorder of Bumbling Failure

The Economics textbook says that when faced with a downturn, the central bank turns to easing and the central government starts borrowing and spending. This combined “stimulus” approach will fill in the troughs without shaving off the peaks; at least according to neo-Keynesian doctrine. The point is to raise what these Economists call aggregate demand. If everyday folks don’t want to spend – because a lot of them can’t – then the government will spend on their...

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Why You Should Care Germany More and More Looks Like 2009

What if Germany’s economy falls into recession? Unlike, say, Argentina, you can’t so easily dismiss German struggles as an exclusive product of German factors. One of the most orderly and efficient systems in Europe and all the world, when Germany begins to struggle it raises immediate questions about everywhere else. This was the scenario increasingly considered over the second half of 2018 and the first few months of 2019; whether or not recession. Over the past...

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Irredeemable Currency Is a Roach Motel, Report 9 June

In what has become a four-part series, we are looking at the monetary science of China’s potential strategy to nuke the Treasury bond market. In Part I, we gave a list of reasons why selling dollars would hurt China. In Part II we showed that interest rates, being that the dollar is irredeemable, are not subject to bond vigilantes. In Part III, we took on the Quantity Theory of Money head-on, and showed the...

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Europe Comes Apart, And That’s Before #4

In May 2018, the European Parliament found that it was incredibly popular. Commissioning what it calls the Eurobarameter survey, the EU’s governing body said that two-thirds of Europeans inside the bloc believed that membership had benefited their own countries. It was the highest showing since 1983. Voters in May 2019 don’t appear to have agreed with last year’s survey. For the first time since 1979, Social Democrats...

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China’s Nuclear Option to Sell US Treasurys, Report 19 May

There is a drumbeat pounding on a monetary issue, which is now rising into a crescendo. The issue is: China might sell its holdings of Treasury bonds—well over $1 trillion—and crash the Treasury bond market. Since the interest rate is inverse to the bond price, a crash of the price would be a skyrocket of the rate. The US government would face spiraling costs of servicing its debt, and quickly collapse into bankruptcy....

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Not Buying The New Stimulus

What just happened in Europe? The short answer is T-LTRO. The ECB is getting back to being “accommodative” again. This isn’t what was supposed to be happening at this point in time. Quite the contrary, Europe’s central bank had been expecting to end all its programs and begin normalizing interest rates. The reaction to this new round was immediately negative: The euro and euro zone government bond yields fell sharply...

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