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Bonds & Interest Rates

3 Amigos of the Macro, Updated

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Posted by Gary Tanashian - NFTRH & BiiWii

on Monday, 12 March 2018 07:36

Gary makes the case that US 10yr & 30yr Interest Rates will begin to decline and the Stock Market, especially Tech, will continue to soar - Robert Zurrer for Money Talks:

You thought I was done with the Amigos shtick, did you? Not by a long shot ma’am. They are the happy-go-lucky riders in play as the stock bull market churns on. They are the rising SPX/Gold ratio and stocks in general vs. gold (Amigo #1), rising US 10yr & 30yr yields (Amigo #2) and the flattening 10-2 yield curve (Amigo #3). On their current trends these goofy riders have signaled “a-okay!” to casino patrons playing the stock market and other risk ‘on’ items.

Taking our macro indicators out of order, let’s start with Amigo #2, who we have been noting to be bracing for something…

 

amigos

What is that something? Well, it is the targets for 10yr & 30yr bond yields we laid out 4-5 months ago in a bearish case for bonds; you know, back when everyone didn’t hate bonds as is currently the case under the much more recent expert guidance of Bill, Ray and Paul? It might as well have been Ringo, George and Paul making the call.

Another Heavy Hitter Calls Bond Bear

I am not trying to come off as a contrarian bond bull, deflationist. There are very valid reasons to be open to if not expect a new and secular bond bear market. But with the yields at our targets, which were established for a reason (being caution) and with the financial eggheads fully in unison, it has come time for caution on the bond bear stance and at least some aspects of a stock bull stance.

For my part, as written on several occasions in NFTRH and in public, Treasury bonds (T bills, 1-3yr, 3-7yr & 7-10yr) are now playing a balancing role in my portfolios and spitting out monthly income to boot. Is this an investment? Absolutely not. Not with Treasury bonds overseen by the chronic debtor AKA the US government and manipulated by the chronic inflator, the Federal Reserve.

But the long-term ‘Continuum’ chart has been kind of obvious, don’t you think? While the 10yr has hit target, the 30yr dwells just under its historical limiter (and target) at 3.3% (the monthly EMA 100).

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At the same time the long bond, which goes opposite its yield, has come down to its EMA 100, which has historically limited declines. This time different? Maybe. There are no absolutes. But this is a risk vs. reward business.



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Bonds & Interest Rates

Rising Interest Rates & The Coming Banking Crisis

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Posted by Martin Armstrong - Armstrong Economics

on Thursday, 22 February 2018 06:04

Martin Armstrong, who has been very accurate on rising interest rates, and he impact they are having on pensions and Europe. He sees another banking crisis coming just as the United States is looking at a new radical bank rescue policy that will effect depositors rather than taxpayers - Robert Zurrer Money Talks 

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While the stock market crashed as the pundit looked in their bag to try to come up with an excuse, they blamed rising inflation and interest rates. Yet, nobody is really paying attention to the underlying trend. The cost of carrying debt has been rising gradually and there are noticeable measurable impacts that the pundits are of course oblivious to since they have to explain every day’s movements and not the real



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Bonds & Interest Rates

The Risk Pension Funds Can’t Escape

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Posted by John Rubino - Dollarcollapse.com

on Wednesday, 21 February 2018 12:30

A must read to discover why Stocks are the biggest risk to pension funds and will trigger the pension crisis sooner for two simple reasons.  Robert Zurrer for Money Talks.  

The “pension crisis” is one of those things – like flying cars and nuclear fusion – that’s always coming but never arrives. But the reason it hasn’t yet happened is also the reason that it will happen, and soon: 

The Risk Pension Funds Can’t Escape

(Wall Street Journal) – Public pension funds that lost hundreds of billions during the last financial crisis still face significant risk from one basic investment: stocks.

That vulnerability came into focus earlier this month as markets descended into correction territory for the first time since February 2016. The California Public Employees’ Retirement System, the largest public pension fund in the U.S., lost $18.5 billion in value over a 10-day trading period ended Feb. 9, according to figures provided by the system.

The sudden drop represented 5% of total assets held by the pension fund, which had roughly half of its portfolio in equities as of late 2017. It gained back $8.1 billion through last Friday as markets recovered.

“It looks like 2018 is likely to be more turbulent than what we have experienced the last couple of years,” the fund’s chief investment officer, Ted Eliopoulos, told his board last Monday at a public meeting.

Retirement systems that manage money for firefighters, police officers, teachers and other public workers are increasingly reliant on stocks for returns as the bull market nears its ninth year. By the end of 2017, equities had surged to an average 53.6% of public pension portfolios from 50.3% one year earlier, according to figures released earlier this month by the Wilshire Trust Universe Comparison Service.

Those average holdings were the highest on a percentage basis since 2010, according to the Wilshire Trust Universe Comparison Service data, and near the 54.6% average these funds held at the end of 2007.

One reason public pensions are so willing to bet on stocks is because of aggressive investment targets designed to fulfill mounting obligations to millions of government workers. The goal of most pension funds is to pay for those future benefits by earning 7% to 8% a year.

“Equities always take up a disproportionate share of the risk budget that any plan has,” said Wilshire Consulting President Andrew Junkin, who advises public pension funds. “You can never get away from it.”

That stance paid off during 2017’s market rally as public pensions had one of their best years of the past decade. They earned 12.4% in the 2017 fiscal year ended June 30, according to Wilshire Trust Universe Comparison Service.

But the risks are sizable losses during market downturns, which then can lead to deeper funding problems. The two largest public pensions in the U.S.—California Public Employees’ Retirement System, known by its abbreviation Calpers, and the California State Teachers’ Retirement System—lost nearly $100 billion in value during the fiscal year ended June 30, 2009. Nearly a decade later, neither fund has enough assets on hand to meet all future obligations to their workers and retirees.

Calpers-Feb-18

Many funds burned by the 2008-2009 downturn tried to diversify their investment mix. They lowered their holdings of bonds as



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Bonds & Interest Rates

Red Alert: 10-Year Yields Move into Overbought Territory

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Posted by Bob Hoye & Ross Clark - Institutional Advisors

on Thursday, 15 February 2018 12:56

Dead right on rising Bond interest rates have been Bob Hoye & Ross Clark of Institutional Advisors. From their alert at July 2016 yields have risen from 1.8 to yesterday's close of 2.91%, a big move as you can see below. But that's not all. Read this report for what is expected after the overbought situation cools down - Robert Zurrer for Money Talks

Click Chart for Larger Image

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Red Alert: 10-Year Yields Move into Overbought Territory



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Bonds & Interest Rates

No Bond Vigilantes: Just Record Short Futures Speculators

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Posted by Mike Shedlock

on Wednesday, 14 February 2018 07:37

A reader asked me about 'Bond Vigilantes' after reading this article: 'Bond Vigilantes' are Saddled Up and Ready to Push Rates Higher.

  • There's reason to be concerned about bond vigilantes, who are no longer under "lock and key" and are free to push yields higher, Ed Yardeni told CNBC.
  • Yardeni coined the term "bond vigilantes" in the 1980s to refer to investors who sell their holdings in an effort to enforce fiscal discipline.
  • People are looking more at the domestic situation and saying, 'You know what, maybe we need a higher bond yield,'" Yardeni says.

This is complete silliness. There are no "Bond Vigilantes".

Fundamentally, there is no way to dump holdings to enforce "fiscal discipline" because someone has to hold every bond issued until it comes to term.

However, there is a record speculative building up against bonds in the futures market.

Hedge Funds Push Record Bets Shorting Treasuries

Hedge funds and other large speculators are more convinced than ever that the 2018 bond-market rout will resume in the days ahead.

The group, known for trading on momentum, boosted short bets in 10-year Treasury futures to a record 939,351 contracts, according to Commodity Futures Trading Commission data through Feb. 6. That means the violent market moves on Feb. 5, when the Dow Jones Industrial Average suffered an unprecedented drop and 10-year yields fell almost 14 basis points, weren’t enough to dissuade wagers that rates are headed higher. The next gut-check comes Wednesday, with the latest read on consumer prices.

Speculators’ positioning matters because it can push momentum to extremes, and can serve as a contrarian indicator since these traders are among the quickest to switch directions when prices turn against them. By contrast, longer-term holders like asset managers are seen as more likely to stay the course. Their net long in 10-year futures is the highest since October 2015.

30-Year Long Bond Positioning

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