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Bonds & Interest Rates

How Can the Majority Be Wrong if they ALL Expect Interest Rates to Rise?

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Posted by Martin Armstrong - Armstrong Economics

on Tuesday, 20 March 2018 06:40

Right now, most analysts think higher interest rates are on the way. Given the majority is always wrong when it comes to markets, Martin makes two predictions on how that will play into the expectations for higher interest rates. - R. Zurrer for Money Talks

WorldIntRates-2012

MARTIN'S ANSWER: With the Federal Reserve stating they must “normalize” interest rates since 2014, of course, the majority will view that will be the trend. We are at a 5,000 low in rates historically. Naturally, the only direction is now UP, UP, and AWAY! There are two ways that they will be wrong and that has to do with their interpretation.

First, they will not comprehend just HOW fast rates will rise or WHY!

Second, they will interpret higher rates as BEARISH for equities, as they traditionally do.

Therefore, the way the MAJORITY will be wrong is not in the mere fact that rates will rise, they read the statement of the central banks. It is the interpretation of what will follow from the simple trend. In equities, every new high was to be the last from 2009 right up to 2018.

....also an update on Martin's "Interbank Rates Starting to Rise – Monetary Crisis is Beginning":

Eurozone Banking Crisis – ECB Delays Rules for Bad Loans until 2021

...more trouble for Europe: Will US Companies Repatriating Cash Home Create Banking Crisis Outside USA?

 



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Bonds & Interest Rates

Yet Another Chart That Screams “Look Out!”

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Posted by John Rubino - Dollarcollapse.com

on Monday, 19 March 2018 06:32

Another chart that bolsters Martin Armstrongs case that a Monetary Crisis is Beginning, though in this case it involves U.S. corporate debt. A monetary crisis will change everything with both banks and debtors facing rapidly rising rates. Prepare yourself - R. Zurrer for Money Talks

So many patterns that have held for decades seem to have broken down, leading to one of two conclusions: Either this time really is different in ways that appear to violate what used to be seen as iron-clad laws of finance, or those laws have been bent but will reassert themselves with a vengeance sometime in the future. 

The latest example is the relationship between corporate debt and default rates on that debt. Historically they’ve moved in the same direction, with higher debt levels leading to higher default rates. That makes intuitive sense because rising debt implies that borrowing is easier for less creditworthy companies who should be expected to default at a higher rate. 

But not this time: 

Here’s why default rates are subdued even as corporate debt levels hit records

(MarketWatch) – U.S. corporate debt levels stand above crisis highs even as default rates among the most leveraged firms remain subdued.

With an economy hitting its stride, it’s perhaps no surprise that the high-yield bond market is placid. The extent of the divergence between debt levels and defaults, however, is worrying to some analysts who feel rising corporate indebtedness will eventually catch out unwary investors and deflate the junk-bond market.

But beyond complacency John Lonski, chief economist at Moody’s Capital Market Research, argued that globalization and the tendency of U.S. businesses to hoard cash as reasons why corporate debt levels may no longer move in sync with default rates and credit spreads.

The high-yield default rate in the fourth-quarter of 2017 fell to 3.3%, even as U.S. nonfinancial-corporate debt ended in 2017 at 45.4% of GDP. This compares with a much higher default rate of 11.1% in the second quarter of 2009, with corporate debt levels at 45% of GDP. Granted, the current levels come with the economy in the eighth year of an expansion, while the second quarter of 2009 marked the final quarter of the longest and deepest U.S. recession since the Great Depression.

The yield spread between high-yield bonds and safe government paper, as represented by the 10-year Treasury note narrowed to an average 3.63 percentage points in the fourth quarter of 2017, from an average 12.02 percentage points in the second quarter of 2009. The tight credit spreads reflects that borrowing costs are still close to historic lows, and that investors are demanding minimum compensation for holding arguably the riskiest debt in the bond market.

default

Moody’s Analytics



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Bonds & Interest Rates

Interbank Rates Starting to Rise – Monetary Crisis is Beginning

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Posted by Martin Armstrong - Armstrong Economics

on Thursday, 15 March 2018 05:40

Martin Armstrong reports that Interest Rates are rising significantly in several important European Markets. With Libor at its highest level since 2008 both banks and debtors face rapidly rising rates. He reports it is the beginning of his Monetary Crisis Cycle - R. Zurrer for Money Talks

Screenshot 2018-03-15 08.03.53

Extremely reliable sources from Behind the Curtain in Europe are becoming deeply concerned that Draghi at the ECB has created a monumental economic disaster he is just praying to holding off until he leaves next year. Interest rates are already starting to rise significantly in several important money and interbank markets. Both banks and debtors are facing a rapid rise in interest expenditures that will shock the world. This is going to blow-out budgets around the globe and both private and public debtors face higher costs of funds.

The Libor (London Interbank Offered Rate), the most important reference rate for the global interbank market, is currently at its highest level since 2008. We elected a Yearly Bullish Reversal on the close of 2016. Once we see the rate close above 213 on a monthly basis, LIBOR rates will be poised to jump to 510. When the Libor price rises, the short-term borrowing for banks becomes more expensive, and for borrowers in the financial market, such as sellers of bonds or buyers of mortgages, debt service becomes more difficult. The demand for debt is exceptionally high. We are looking at LIBOR rates rising sharply. The dollar-lending rate for dollar loans has been rising steadily in all maturities since about the end of 2014. The dollar-Libor for three-month loans in March 2017 were trading at around 1.1%. Currently, this dollar-Libor rate stands at around 2%.

This year’s WEC will be focused on the next major crisis and how all the markets will interact. This is the beginning of the Monetary Crisis Cycle. Our Yearly Models on LIBOR are already in a bullish posture on both short-term indicators. A closing on an annual basis above 208 will signal rates will rapidly more than DOUBLE into 2020. A closing above 510 on an annual basis will warn of a MAJOR financial crisis hitting just about every economy.

...also from Martin on March 15th:

The Resistance to Change is Why We have Panics

 



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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).

tyx

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 

hauling arrow up graph anim 300 clr 13071

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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