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Bonds & Interest Rates

How Will Interest Rates Double in Europe from Here

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Posted by Martin Armstrong - Armstrong Economics

on Monday, 15 January 2018 07:04

IntRate-Manipulate

Martin forecasts rising rates in Europe as well as a rise in the Euro and decline in the US Dollar. A declining US dollar is something not many people are expecting right here - Money Talks Ed

QUESTION: Marty

 You mention rates are going up soon in Europe but how can the ECB achieve this when they are still implementing QE. I work in the European HY market and the technicals are horrible as so much money is flooding in chasing yield driving up leverage and deteriorating lending conditions. If rates do go up soon can we expect a spectacular unwinding of the HY bond market that has ground so tight due to CSPP?

Thanks for all your guidance and help in navigating these markets. Thanks so much, keep up the amazing work.

NS

ANSWER: Central banks can only control short-term rates for brief periods of time. They cannot control the long-end. The problem the ECB has is by backing off of QE, it will require private buyers to replace them, which will not happen at negative to low rates. The interest rates will be set by the private sector – not the ECB. The QE program has degenerated from an economic stimulus to simply life-support for member states. The “stimulus” never made it past the governments and we have nearly 10 years of QE that has just failed completely. Once the government have to turn back to private buyers, that is when you will see rates rise sharply to try to sell new debt.

....also from Martin:

The Rush to the Euro with QE Ending?



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Bonds & Interest Rates

Martin Armstrong: The Municipal Debt Crisis Begins

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Posted by Martin Armstrong - Armstrong Economics

on Wednesday, 10 January 2018 07:08

North-Rhine-Westphalia

I have previously reported that about 50% of German municipalities are insolvent. This is a global trend and we are witnessing it in the United States as well. The North Rhine-Westphalian Association of Cities has called for help from the future German federal government as the building crisis among financially weak municipalities continue to escalate. This includes the fourth largest by area in Germany with the capital situated in Düsseldorf. The main cities include Cologne, Düsseldorf, Dortmund, and Essen. They are pleading for a grand coalition between the CDU and SPD to save the municipal governments. With the end of the historic low-interest phase, interest rates are poised to rise dramatically in Europe and they begin to see that the appetite for new debt from the government is sharply declining.

Politicians have been hiding this municipal crisis in Germany until after the elections when it was assumed Merkel would win as always. Now the cat is coming out of the bag and we will begin to see the real impact of nearly 10-years of subsidizing governments by the ECB rather than actually stimulating the economy that never bounced. This is a fundamental background issue behind the rise in interest rates between 2018 and 2021.

....also from Martin: At What Point do we reach Euphoria in the Equity Markets?

 



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Bonds & Interest Rates

Finally: Time For a Leveraged Short On Bonds

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Posted by Rambus Chartology

on Wednesday, 10 January 2018 06:38

Ed Note: Eventually, after the Federal Reserve has done everything in its power to keep interest rates low, a giant bear market in Bonds is looming. The Fed Fund rates hit a high in May 1981 of 20%. and a low of .25% in Dec 2008. Since then Janet Yellen kept the Fed Funds rate between .05% & .75% before creeping a bit higher to 1.5%. The 30 year bond high was 176.94 on July 8, 2016, and has since fallen to the 150 area. It is a relief that this analyst Rambus has clearly laid out a technical case that that huge 36 year bull market in Bonds appears to finally be ready to roll over into a significant bear market. For anyone with exposure to interest rates, be it through mortgages, loans of investments, this analysis could be absolutely critical to navigating the next decade or more successfully. - Rob Zurrer Money Talks Editor

TMV : 3X Leveraged Short on Treasury Bonds

TMV is a 3 X short the TLT 20 year treasure bond etf. This trade is based on the TLT. For well over three years now the TLT has been building out what looks like a massive H&S top with the top of the right shoulder now in play. I’m going to take an initial position and buy 250 shares of TMV, 3 X short the TLT, and buy 250 shares at the market at 18.83 with the sell/stop on a daily close below the right shoulder low on the daily chart for the TMV at 17.35. I’m anticipating the the right shoulder high on the TLT will be the ultimate high. There will be several more entry points if this trades starts to workout.

A second buy point would be on the breakout above the neckline on the daily chart for the TMV. A third buy point would be on a breakout above the double bottom trendline.

tmv-day-buy

Below is the weekly chart for the TMV. The more conservative members may want to wait for the breakout above the double bottom trendline and the 30 week ema.



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Bonds & Interest Rates

How to Behave in the Post-QE Era

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Posted by AllianceBernstein L.P.

on Tuesday, 09 January 2018 06:54

Global Bond Markets to Enter New Phase in 2018

2017 was supposed to be the year that would put an end to modest growth, lukewarm inflation and anemic bond yields. It didn’t live up to the hype. But pressures are building, and that means volatility ahead—as well as opportunity.

Global growth and US growth were solid last year, so the Federal Reserve continued to slowly drain liquidity from the system. The world’s most influential central bank raised official interest rates and began the long process of reversing quantitative easing (QE), which had poured trillions of dollars’ worth of liquidity into the markets after the 2008 global financial crisis.

But counter to expectations and the Fed’s intention, bond yields remained stubbornly low (Display). In the US, long-term Treasury yields fell while shorter-dated ones rose, causing the yield curve to flatten. Prices on equities and high-yield bonds continued to rise, and US and European investment-grade credit spreads tightened as well. Overall, financial conditions were even easier by the end of the year than they had been at the start.

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Is the US Economy Heading for a Time Out?



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Bonds & Interest Rates

Yield Curve Steepens Dramatically: What's Going On?

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Posted by Mike Shedlock

on Wednesday, 20 December 2017 07:17

US treasuries are seeing action we have not seen for a while: Strong sharp steepening of the yield curve.

Screen Shot 2017-12-20 at 7.22.46 AM

The yield curve is said to steepen when the spreads between short-term and long-term rates increases. The yield curve flattens when spreads shrink.

  • A bearish steepener occurs when rates are rising and long-term yields are rising more than short-term rates. Spreads widen.
  • A bullish steepener occurs when rates are falling and short-term rates are falling faster than long-term rates. Spreads widen.
  • A bullish flattener occurs when rates are falling and long-term rates are falling faster than short-term rates. Spreads narrow.
  • A bearish flattener occurs when rates are rising and short-term rates are rising faster than long-term rates. Spreads narrow.

The terms bearish and bullish refer to capital gains (bullish) or losses (bearish) if one is invested in government bonds.

Bearish Steepener Meaning

A bearish steepener is generally a sign that market participants believe the economy is getting stronger and the Fed (Central Bank), will be hiking rates faster than previously anticipated or more than anticipated.

What Happened Today?



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