Saturday, June 11, 2016

The Bond Market Is Borrowing Happiness From Tomorrow

In a frenzy fueled by Central Bank stimulus on worries about slowing economy, many of the benchmark treasury yield across the globe have went to record low while some have even delved into negative territory.

When an economy is slowing and faltering, it is common practice that the Central Bank exercises monetary policy to cut interest rates. The objective is to make saving less attractive and for people and companies to spend more, henceforth boosting the economy in process. The problem starts to surface when the economy isn't growing as fast as they would like but money is being forced to stuck in increasing asset bubbles territory.

The negative territory in Japan and Swiss in particular is particularly fascinating to me because it clearly indicates that demand and supply is not balanced. What the negative yield is telling us is to go out there and invest in riskier assets because if you are going to keep your money in safe haven government bonds or deposit, then you will need to pay for it. The "premium" above the face value one pays for a zero coupon cash flow is a perceived likelihood of higher return of invested capital. Apparently, there's a lot of demand for it. 

Just take a look at the picture below of how it has pans out over the years.



Bill Gross mentioned in his interview yesterday that the multi-Trillion of negative rate bonds is a bubble which will explode big one day. Given how these nations are expanding their monetary policies aggressively, we can only assume that the financial system has become even more leveraged than it was in 2007 at the beginning of the last GFC crisis.

These floating bonds, including some junk bonds, are mostly time-bombs which have been misallocated and all it takes is one fine event to create a domino effect on default cases on these companies or countries. These seem to suggest that history will repeat itself once again, as it always is.

5 comments:

  1. Replies
    1. Ass...saya tidak menyanka kalau saya sudah bisa sesukses ini dan ini semua berkat bantuan MBAH RAWA GUMPALA,saya yang dulunya bukan siapa-siapa bahkan saya juga selalu dihina orang dan alhamdulillah kini sekaran saya sudah punya segalanya,itu semua atas bantuan beliau.Saya sangat berterimakasih banyak kepada MBAH RAWA GUMPALA atas bantuan nomor dan dana ghaibnya,alhamdulillah kini saya sudah bisa membuka usaha kembali yang dulunya pakum karna masalah faktor ekonomi dan kini kami sekeluarga sudah sangat serba berkecukupan dan tidak pernah lagi hutang sana sini,,bagi anda yang punya masalah keuangan jangan sungkan-sungkan untuk menhubungi MBAH RAWA GUMPALA karna insya allah beliau akan membantu semua masalah anda dan baru kali ini juga saya mendaptkan para normal yang sangat hebat dan benar-benar terbukti nyata,ini bukan hanya sekedar cerita tapi inilah kisah nyata yang benar-benar nyata dari saya dan bagi anda yg ingin seperti saya silahkan hubungi saja MBAH RAWA GUMPALA di 085==316==106==111




      (((( BUKA BLO DANA GHAIB DAN NOMOR GHAIB MBAH RAWA GUMPALA ))))







      Ass...saya tidak menyanka kalau saya sudah bisa sesukses ini dan ini semua berkat bantuan MBAH RAWA GUMPALA,saya yang dulunya bukan siapa-siapa bahkan saya juga selalu dihina orang dan alhamdulillah kini sekaran saya sudah punya segalanya,itu semua atas bantuan beliau.Saya sangat berterimakasih banyak kepada MBAH RAWA GUMPALA atas bantuan nomor dan dana ghaibnya,alhamdulillah kini saya sudah bisa membuka usaha kembali yang dulunya pakum karna masalah faktor ekonomi dan kini kami sekeluarga sudah sangat serba berkecukupan dan tidak pernah lagi hutang sana sini,,bagi anda yang punya masalah keuangan jangan sungkan-sungkan untuk menhubungi MBAH RAWA GUMPALA karna insya allah beliau akan membantu semua masalah anda dan baru kali ini juga saya mendaptkan para normal yang sangat hebat dan benar-benar terbukti nyata,ini bukan hanya sekedar cerita tapi inilah kisah nyata yang benar-benar nyata dari saya dan bagi anda yg ingin seperti saya silahkan hubungi saja MBAH RAWA GUMPALA di 085==316==106==111

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  2. B,

    interesting...
    btw,how would one classify a bond as "junk bond" or non-junk bond?
    with the recent mass issue of bonds/perps by Sgp coy recently, do you reckon, we will be seeing something similar locally as well?

    ReplyDelete
    Replies
    1. Hi FC

      Yeah you are right.

      A lot of bonds are now considered junk status, those probably that is poor in credit rating but gives higher yields are all equally in demand. There's an obvious bond bubble right now with things in demand.

      Delete
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