Global Bond Rout: What’s Really Behind It
- “The global rout in sovereign debt markets is a collective epiphany that we’re six years and counting from the 2008 crash and we’re still on central bank life support.” – Quote
– - Global Bond Rout: What’s Really Behind It
by Pam Martens: May 13, 2015, http://wallstreetonparade.com/
There has been a seismic shift in thinking among global investors when it comes to sovereign debt and it’s not about what you’re reading in the business press.
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In the past three weeks, yields have spiked on sovereign debt which has caused an estimated loss of over $400 billion globally – and counting. (Bond prices move inversely to interest rates.) This has effectively been a rapid, unanticipated tightening of monetary policy by the markets themselves – leaving central banks in Europe, China and Japan, which are trying to effectuate an easing of rates, nervously fingering their worry beads.
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The business media has attributed the spike in rates to everything from the rise in oil prices refocusing attention on the potential for inflation, rather than deflation, to the unwinding of crowded trades as investors prepare for a Fed rate hike. Those factors may be at play to some degree, but the real worry here is one of supply and demand – now and going forward.
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Yesterday’s 3-year Treasury note auction gives you a hint of what can happen. Yesterday was the first leg of a $64 billion Treasury note and bond auction this week: $24 billion on Tuesday in 3-year notes; another $24 billion today in 10-year notes; and $16 billion tomorrow in 30-year bonds.
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In the face of those supply headwinds, the 10-year yield whipsawed yesterday from an opening yield of 2.28 to a high of 2.36 before closing at 2.25 percent. The spike in the 10-year yield sent shockwaves through the stock market – whose dividend yield competes with bond yields – sending stocks down 172 points before closing at a more modest loss of 36.94 points as Treasury prices recovered and yields declined.
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