Sunday, July 17, 2016

Bubbles In Bond Land:
It’s A Mania!
"Some day the due bill will arrive. But in the interim it is useful to contemplate the starting point. Corporate finances are being ransacked owing to the scramble for yield set in motion by central banks and the $13 trillion of subzero sovereign debt that has been generated in the last two years. But this monumental deformation is so recent that there is very little negative coupon debt that has yet been issued in the marketplace. Subzero land is overwhelmingly a phenomena of the one-the-run market, meaning $13 trillion of bonds are trading at significant premiums to par—-and, in some Japanese and German issues, massively so. In short, the global bond market has become a giant volcano of uncollectible capital gains. For example, long-term bunds issued four years ago are now trading at 200% of par. Yet even if the financial system of the world somehow survives the current mayhem, the German government will never pay back more than 100 cents on the dollar. Can you say multi-trillion dollar bond implosion? Better try. Its evenutal arrival is an absolute certainty."
- David Stockman*
LINK HERE to the essay

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