Archive for the ‘Bond’ Tag

Out of control ?

Out of control ?

By printing money
it is hoped to:
–Replenish bank reserves
–Hold interest rates low,
to moderate interest payments on treasury loans,
and to encourage home purchases
–Raise the stock market.

By keeping rates low
and paying interest on bank reserves
the banks have been successfully induced
to withold commercial loans
thereby holding the economy in check
and so, in spite of printing,
holding money velocity low
and so, keeping some pressure on inflation.

Velocity 2013

But,

Jun 27, 2013
the Treasury sold $35 billion in five-year notes
to the lowest demand since September 2009,
with a bid-to-cover ratio of 2.45 times.”

“The April TIC report showed
a shocking drop in foreign ownership of US government debt.”

“the selloff [in the bond market]
has now reached the status of the worst ever bond market selloff
(of 90 days or less)
in percentage terms.

“Since May 2nd 2013,
10-year yields have risen from 1.626% to 2.609%,
a 98.3bp selloff
which means that yields have risen 60.5%
in less than two months”

10 Year Yield

Considering:

–“There are more than $12 trillion paper dollar assets
(stocks, bonds and cash)
held by foreigners outside the U.S.”

if this is the start of ‘recognition’
and foreign holdings of US paper is offloaded
rates will substantially rise

also, as

–“the global derivatives
have increased in size from $100 trillion in 1998,
to $1.2 quadrillion today.”
and the majority of those derivatives are interest rate swaps
and that the banks have sold the fixd rate,
and hold the variable rate

the effect of rate rise, on the banks,
on which the world economy relies,
will be catastrophic,

and the expense to the treasury
will be far greater than tax income will cover.

Except for a miracle
this implies immanent western world
deflation on bank collapse
or hyperinflation on attempts to print
to cover bank or treasury payments
or simultaneously, both.