bonds Markets

Did The Bond Bubble Just Quietly Pop?

Perhaps - just perhaps - the "failed" German 30-year sale was the canary in the coal mine

Perhaps - just perhaps - the "failed" German 30-year sale was the canary in the coal mine
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7 comments on “Did The Bond Bubble Just Quietly Pop?

  1. We certainly do live in interesting times!!

  2. OK ! OK ! My take away is STILLl that irregardless of what everyone wants ( in a self interested sense ) there still winds up being a limit to the level of manipulation that can occur before finally the wheels fall off…..Yeah these surely are interesting times (vm)

  3. Emotional Mystic

    There is risk in equities and debt! By one measure we are totally F’d!

    In Search of Distress Risk in Emerging Markets (IMF April 20, 2019)

    We find that, controlling for firm-specific variables and country fixed effects, the 5-year US Treasury rate, the Fed funds rate, and the VIX are correlated with distress risk:

    See trouble brewing: https://fred.stlouisfed.org/graph/?g=oGbp

    Also see, blind mystic, Baba Vanga, states: ” Donald Trump will fall ill with a mystery illness, leaving him deaf and suffering from brain trauma.”

  4. This am, UST yields up to 1 yr and at 30 yr, down 2 yr through 10 yr.

    Maybe the 30 yr zero coupon Bund was just too much duration for the market at that moment.

    Or perhaps zero coupon bonds don’t meet some of the needs of the folks buying negative yield Bunds.

    I admit to having a hard time grasping all the reasons people buy negative yielding bonds. I understand these include
    – Financial institutions buying as regulatory reserves
    – Institutions buying as repo collateral
    – Insurers and pensions matching anticipated cash flows
    – Investors combining negative yield bonds with FX swaps or other for positive carry
    – Investors buying as directional bet on yield declines
    – Central banks buying as monetary policy tool
    – Investors buying as pure “mattress cash”
    And I’m sure there are many more reasons I don’t have a clue about.

    Would super long maturity zeroes meet most of these reasons as well as coupon-paying bonds or shorter maturity bonds?

    • Jyl, I think you covered the bulk of the reasons. The question I have is at what yield will investors of any stripe (institutional, financial, retail, etc.) just stop buying them (-1.0%, -1.5%?), whether at auction or or in the secondary market? And what will happen when those purchases stop?

  5. So sorry, I gave wrong information in the first line above – or maybe it was right for the first few minutes of the market . . .

  6. I’m kind of torn on this. I would definitely be betting on steepeners from here looking at the US in isolation. But when you include EU and the yield differentials, the picture gets murky, to say the least.

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