Analysis Topic: Interest Rates and the Bond Market
The analysis published under this topic are as follows.Thursday, April 29, 2021
Get Ready for the Fourth U.S. Central Bank / Interest-Rates / Central Banks
We all should be aware that the current Federal Reserve of the Unites States is not America’s first central bank. In fact, we’ve had a few others before this current disastrous iteration came into existence in 1913. We hope and believe it won’t be long before this latest version goes away for good.
Our first central bank was founded in 1782 and was called The Bank of North America. Soon after, in 1791, The Bank of North America became The First Bank of the United States chartered by Congress. However, in 1811 its twenty-year charter expired and was not renewed.
Five years later Congress chartered its successor called the Second Bank of the United States that lasted from 1816-1836. This Central Bank collapsed for the same reason the others did before it: they were, for the most part, filled with corruption and became progenitors of speculation and economic instability.
Wednesday, April 14, 2021
U.S. Dollar Junk Bond Market The Easiest Money in History / Interest-Rates / US Bonds
The latest data from Refinitiv shows that companies have raised a record $140 billion in the U.S. dollar junk bond market during the first quarter of this year. That beats the previous record set during the second quarter last year when companies scrambled to issue debt in a bid to raise cash during the pandemic. The three biggest issuance quarters in history have been set in the past year. With investors falling over themselves to lend money to any venture offering a U.S. dollar yield above 4%, companies are now not only finding that they can raise money easily in order to roll over existing debt, but some are using the proceeds to pay dividends to owners. It's beyond absurd.
When a mania is in full force, though, the vast majority of participants are blind to the absurdity. Investors, for instance, think that they must lend because 4% or higher is such a juicy yield when compared with anything else. And the central banks will not let companies fail, so it's a free lunch.
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Wednesday, April 07, 2021
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit / Interest-Rates / Quantitative Easing
Central bankers and their comrades in Washington DC changed course in 2020. The policy shifted from “print money and hand it to Wall Street” to “helicopter money” in the form of direct payments and loans to citizens.
The fiscal stimulus, like the Fed’s monetary stimulus before it, provided a fix that addicted markets needed to stay high.
The helicopter money represents another “temporary” measure that will almost certainly become permanent. Much like Quantitative Easing and Zero Interest Rate Policy, bureaucrats will have a very hard time stopping what they have started.
Friday, March 26, 2021
Freedom Fatality of the Fed / Interest-Rates / US Federal Reserve Bank
In a recent interview, I referred to the Fed as a disgusting institution. I want to explain why I believe that to be the case, as I do not like to disparage anyone or any entity indiscriminately or capriciously—only when absolutely necessary. To be clear, central bankers may not be nefarious in nature, but their product is iniquitous.
Any entity whose very purpose for existence is to destroy markets is inherently disgusting and, in the end, one that ends up being evil. At its core, the Fed is Robin-Hood in reverse; stealing from the poor by destroying their purchasing power to give to the rich by inflating their asset prices. The Fed, along with all central banks, are inherently freedom killers, middle-class eviscerators and economic destabilizers; regardless of stated intentions. If that wasn’t bad enough, the problem now is that the Fed has usurped markets to the point of no return.
Thursday, March 25, 2021
It’s the Bond Market, Stupid / Interest-Rates / US Bonds
As our Continuum chart predicted over a year ago, Jerome Powell was called to his higher inflationary powers when the macro markets liquidated with great violence and terror. This link shows the Continuum (30yr yield and its monthly EMA 100 limiter) as it was then, begging for inflationary action…
Oh Jerome? Bond market calling…
Below is the Continuum today. Since the linked post from February, 2020, a lot has happened and it has been according to the plans we laid out last spring. The plan was inflationary because the Fed was going into steroidal inflation mode. The ‘Fed comfort box’ on the chart has thinned out from the original post because the red dotted limiter (monthly EMA 100) has declined appreciably since then.
These many months the NFTRH target has been 2.5% to 2.7% on the 30yr Treasury yield. This week that zone’s lower bound got dinged. It is coming time for a cool down at least, if the macro reflation is going to get a second wind. What could provide that second wind?
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Tuesday, March 09, 2021
US Bond Market Rocks the Richter Scale / Interest-Rates / US Bonds
The global sovereign bond market is fracturing, and its ramifications for asset prices cannot be overstated. Borrowing costs around this debt-disabled world are now surging. The long-awaited reality check for those that believed they could borrow and print with impunity has arrived. From the U.S., to Europe and across Asia, February witnessed the biggest surge in borrowing costs in years.Thursday, February 25, 2021, was the worst 7-year Note Treasury auction in history. According to Reuters, the auction for $62 billion of 7-year notes by the U.S. Treasury witnessed demand that was the weakest ever, with a bid-to-cover ratio of 2.04, the lowest on record. Yields on the Benchmark Treasury yield surged by 26 bps at the high—to reach a year high of 1.61% intra-day--before settling at 1.53% at the close of trading.
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Wednesday, February 24, 2021
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) / Interest-Rates / US Debt
One of the reasons why my analysis of April 2019 was more subdued in terms of the prospects for US house prices than it would otherwise have been is because the yield curve was flirting with inversion, that I concluded that the Fed would not allow to take place and thus adopt whatever measures were necessary to PREVENT inversion that tends to foreshadow lower inflation and recessions.
The Fed succeeded in preventing a sustained inversion during 2019, with the yield curve massaged to hover around 0.2% that is until the pandemic broke and the Fed panicked and opened the monetary flood gates sending the yield curve soaring to currently stand at 1% as the bond market is discounting higher future inflation as the consequence of rampant money printing.
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Sunday, February 07, 2021
TREASURY YIELDS SUGGEST A TOP WITHIN THE NEXT 6 MONTHS / Interest-Rates / US Bonds
Historically, whenever the Treasury Yields fall below zero, then recover back above zero, the US/Global markets reach some peak in price levels within 3 to 8+ months. My research team and I believe the actions of the global markets may be setting up for a future peak in price levels sometime in next 6 months. We believe this will start when the Treasury Yields cross above the “Breakdown Threshold”.
expect A Continued Rally As Long As Yields Stay Below Certain Levels
In 1998, a very brief drop below zero in yields prompted a minor pullback in the markets before the bigger top setup in 2000. This pullback in price aligned with what we are calling the “Breakdown Threshold” level on Yields near 1.20. After the Yields crossed this Threshold, briefly, in 1999, they fell back below this level and the US stock market continued to rally toward an ultimate peak in 2000.
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Thursday, January 28, 2021
US Interest Rate Threshold Keeps Dropping / Interest-Rates / US Interest Rates
Initial Jobless claims totaled 900,000 for the week ending January 16th, after shedding 965,000 in the week prior. These numbers are over four times greater than they were a year ago. I find this to be not only sad but also remarkable in that we are still losing close to one million jobs per week a year after the Wuhan virus first broke out. More signs of economic stress were found in the December Retail Sales report. Sales dropped 0.7% last month, and the data for November was revised down to show a decline of 1.4%, instead of the 1.1% previously reported. Figures such as these illustrate just how fragile the economy still is, which will automatically put upward pressure on the level of outstanding debt. And, gives the new Administration impetus to pass more and bigger fiscal stimulus packages. That's really bad news for any of us left that still care about debt and deficits.Read full article... Read full article...
Wednesday, January 06, 2021
Fed Taper Nervous Breakdown / Interest-Rates / Quantitative Easing
The next time the Fed reduces its bond purchase program the market reaction should be more like a nervous breakdown rather than just a tantrum.
First let’s review a bit of the historical histrionics surrounding the initial Taper Tantrum. Back in September 2012, the Fed’s Quantitative Easing program was running at the level of $85 billion per month. The asset purchase program consisted of both Mortgage-Backed Securities and Treasuries. Then, in December 2012, Fed Chair Ben Bernanke expanded his massive QE 3 scheme by making its duration unlimited. But by May 2013, the time had finally arrived to start discussing the tapering of its asset purchases. And in December of that year Tapering officially began; with QE ending by October 2014. Of course, the Fed would be back in the QE game six years later. But at the time, the overwhelming consensus thinking was that the 100-year economic storm had passed and we would never witness such extraordinary actions by our central bank ever again.
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Saturday, December 26, 2020
Global Tipping Point: "Good" Debt Vs. "Bad" Debt (Which is Winning?) / Interest-Rates / Global Debt Crisis 2020
All major U.S. economic depressions were "set off" by this single factor
Isn't all debt "bad"?
Well, in a word, no.
Broadly speaking, there are two types of debt. One of them actually adds value to the economy if handled in the right way, so you might call this a "good" form of debt. However, there's another type of debt (or credit) which hurts the economy.
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Monday, December 21, 2020
Overstretch: The Long Shadow of Soaring US Debt / Interest-Rates / US Debt
If the past year was dominated by the huge human costs of COVID-19, the next few years will be about its economic aftermath, including the alarming rise of US debt. What’s needed is multilateral cooperation - a new 'Grand Alliance.'
On Friday, Congressional leaders failed to secure a bipartisan deal on a $900 billion pandemic relief package. A government shutdown was avoided only with a 2-day extension.
A protracted shutdown would amplify the risks for pandemic escalation and economic crisis, amid the long-awaited vaccine rollout. Bipartisan tensions are compounded by the impending Georgia Senate runoff races in January that will determine control of the chamber in the Congress.
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Monday, December 07, 2020
What Do We Do with All This Debt? / Interest-Rates / US Debt
Before the coronavirus pandemic I expected the US would hit the debt wall in the late 2020s. Now, the debt is growing even faster and we will hit that wall a lot sooner.
What happens when we come to the place where we have to deal with all that debt?
Fortunately, my favorite central banker, Bill White -- who was the Bank for International Settlements' chief economist -- did a brilliant interview with my friend Mark Dittli in Switzerland in November that gives us some answers.
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Monday, November 23, 2020
Evolution of the Fed / Interest-Rates / US Federal Reserve Bank
The evolution of humankind supposedly goes something like this: From a void and through a series of serendipitous happenstances arose; galaxies, the Earthly Primordial ooze, Bacteria, Monkeys, and eventually homo sapiens (wise man). The evolution of the Fed is deserving of equal derision, but with a much worse outcome.Back in 1913, the Federal Reserve Act gave birth to the Federal Reserve System. The law gave power to the central bank to become a lender of last resort to financial institutions. If a bank found itself in trouble, it could approach the discount window and exchange 100% guaranteed government debt for Fed credit at a deep discount. This process defined the majority of the Fed's role for decades to follow.
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Wednesday, November 18, 2020
US Bond Market: "When Investors Should Worry" / Interest-Rates / US Bonds
The cost of insuring against default has been declining – what this may suggest
You may recall hearing a lot about “credit default swaps” during the 2007-2009 financial crisis.
As a reminder, a CDS is similar to an insurance contract, providing a bond investor with protection against a default.
In the past several months, the cost of that protection has fallen dramatically.
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Friday, November 13, 2020
Eyeing Upside in US Bonds TLT / Interest-Rates / US Bonds
Is it a coincidence that 10-Year YIELD climbed to 1.00% from 0.75% in the days following Pfizer's vaccine announcement (and perhaps in reaction to the apparent result of the Presidential Senate elections), and then hit a wall?
Not if we consider the big bad Fed lurking out there, scarfing up all Treasury supply even if the economic data appear to be stronger than expected.
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Friday, November 13, 2020
Global "Debt Mountain": Beware of This "New Peak" / Interest-Rates / Global Debt Crisis 2020
Prepare now for a situation that is "building to an epic finale"
Most people going about their daily business probably never give a moment's thought to global debt.
But, in EWI's view, the topic deserves serious attention.
You only have to think back to the 2007-2009 subprime mortgage meltdown to know why. Of course, subprime mortgages are a form of debt, and when many of these loans turned sour, the entire global financial system teetered on the brink of collapse.
But, why were so many of these bad loans made in the first place? It boils down to one word: confidence ... confidence that the loans would be repaid, confidence that the stock market would continue to rally, confidence in the economy and confidence in the future, in general.
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Monday, November 09, 2020
Is Fed Chairman Powell the Real Election Winner? / Interest-Rates / US Federal Reserve Bank
As President Donald Trump continues to insist that he will be the winner of the election after all the legitimate votes are counted and the illegitimate ones thrown out, at least one publication has declared a different winner. Not Joe Biden, but Federal Reserve chairman Jerome Powell.
The Wall Street periodical Barron’s argued Powell has become a more important figure for markets than whoever occupies the White House.
Even as the presidential election outcome has been beset by uncertainty all week, Wall Street didn’t panic. Quite the opposite. Stocks surged on expectations for divided government and gridlock – and four more years of Fed stimulus.
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Wednesday, November 04, 2020
How to Stay Ahead of Price Turns in the U.S. Long Bond Market / Interest-Rates / US Bonds
This method of analysis applies to any widely traded financial market
Back in August, the volatility index for Treasury debt was at an all-time low, indicating record commitment to the idea the markets would continue to calmly rise.
Indeed, here's a July 27 Bloomberg headline:
Bond Investors Are Getting Fresh Reasons to Stay Record Bullish
Bloomberg mentioned U.S.-China tensions as a reason that investors would seek a safe haven in bonds, hence, pushing prices higher.
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Wednesday, October 14, 2020
US Debt Is Going Up but Leaving GDP Behind / Interest-Rates / US Debt
We have plenty of evidence that US debt will balloon to $50 trillion by 2030, maybe more. Many smart people conclude that, in the meantime, the federal debt isn’t a problem.
Looking at the numbers as a percent of GDP—and considering the CBO long-term forecasts out to 2050—Sam Rines, whom I greatly respect, writes this:
"In its latest round of projections, by far the most intriguing portion of the analysis related to the dynamics around the US federal debt load. The US debt load has increased dramatically due to the response to COVID, but the ability to service the US debt load is actually improving.