Bonds & Interest Rates

Strategy for a long bond top

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Posted by Futures - Stock Commodity Options & Forex Strategy

on Thursday, 08 December 2016 12:39

MT December2016 Options Blow

What to do if/when interest rates start rising? Buy an out-of-the- money put butterfly.

In 2008, the U.S. economy hit its roughest patch since the Great Depression nearly eighty years earlier. Only the inflationary spiral of the late 1970s followed by the sharp recession of the early 1980s can compete with it. In reaction to that inflation, the Federal Reserve, led by then newly appointed chairman Paul Volcker, raised the Fed Funds rate as high as 20% in March of 1980 and January of 1981. The Fed Funds Rate is the rate that depository institutions lend out to other depository institutions overnight, with funds that are maintained at the Fed. The higher the rate charged by the Fed the more painful it is to borrow. During inflationary times, when the rate is raised money turns over more slowly and inflation then cools off, or so goes the plan. 

...read more HERE


....related: Look what’s happening to Treasuries: Most Oversold in 43 Years



Bonds & Interest Rates

The Variable-Rate World Stares Into The Abyss – Again

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Posted by John Rubino - DollarCollapse.com

on Wednesday, 07 December 2016 08:09

T5Bou 4OBack in 2013 interest rates in the US and elsewhere started to rise, and the results were scary to put it mildly. Here’s an excerpt from a column that appeared here in July of that year: 

Interest rates soared again last week. This weekend a lot of people are running a lot of numbers and getting some terrifying results.

It seems that the past few years of falling interest rates have lulled a big part of the global economy into financing with variable-rate debt. So when interest rates go up, there’s a world-wide reset in interest costs that, best case, amounts to a tax increase on individuals and businesses and, worst-case, threatens to blow up the whole system.

The most familiar but least worrisome part of this story is the adjustable rate mortgage, or ARM, which is basically a teaser-rate home loan that rises over time towards the prevailing 30-year fixed rate. The latter rate jumped from 3.5% to 4.5% in just the past month, which means ARM resets are now aiming at a higher target. For ARM holders, the resulting higher monthly mortgage payment is exactly like a pay cut or tax increase, leaving less around at the end of the month for new cars, vacations, etc. So discretionary spending drops and, other things being equal, the economy slows down. 



Bonds & Interest Rates

The Liquidity Crisis Coming To A Market Near You

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Posted by Mad Hedge Fund Trader

on Friday, 02 December 2016 10:46

saupload Mohamed-El-Erian-e1431024366379Summary

I had the great pleasure of having breakfast the other morning with my long time friend, Mohamed El-Erian, former co-CEO of the bond giant, PIMCO.

Mohamed argues that there has been a major loss of liquidity in the financial markets in recent decades that will eventually come home to haunt us all.

The result will be a structural increase in market volatility, and wild gyrations in the prices of financial assets that will become commonplace.

We have already seen a few of these in recent weeks. German ten-year bund yields jumped from 0.01% to 0.20% in a mere two weeks, a gap once thought unimaginable. The Euro has popped from $1.08 to $1.03.

Since July, we have watched in awe as the ten-year Treasury yield ratcheted up from 1.23% to 2.40%.

The worst is yet to come.

It is a problem that has been evolving for years.

...read more HERE


Bonds & Interest Rates

Look what’s happening to Treasuries: Most Oversold in 43 Years

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Posted by Mike Larsen - Money and Markets

on Tuesday, 29 November 2016 07:40

I hate bonds as much as the next guy. I’ve been telling investors to stay the heck away from them for a long time. But man, this selloff in the government debt market is getting nuts. Treasuries are now the most oversold they’ve been in the 43-year history of a benchmark bond index tracked by Bloomberg, according to this story. Makes you wonder if a reversal isn’t coming, and soon. Check out the chart below …


....related from Larry Edelson: Biggest loss in 26 years …


Bonds & Interest Rates

Biggest loss in 26 years …

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Posted by Larry Edelson - Money & Markets

on Friday, 25 November 2016 08:50

Sovereign debt markets are taking a shellacking. Per a recent Bloomberg article, global bond markets had their worst two-week period in 26-years.

Thing is, it’s just beginning. As I have told you all along, the world is facing a great sovereign debt crisis — the likes of which has not been seen since at the Great Depression.

Back then, virtually all of Europe went bankrupt. Fears of government bankruptcies swept the world, enveloping Japan, China and even the U.S. — even though we were a creditor nation back then.

But this time, it’s going to be a whole lot worse. This time, it isn’t just the countries of Europe that are bankrupt.

Screen Shot 2016-11-25 at 7.41.09 AMThis time, it’s Europe, Japan and the United States — all bankrupt, all scrambling to come up with solutions to kick the can down the road some more, and all in deep doodoo.

Think President-elect Trump will make a difference and solve the problem? I don’t. Especially if he gets tough on trade, which will demolish our economy. Some think it will cause inflation and thereby erode the burden of our debts.

But that’s a joke. Even if — as some contend — the value of the U.S. dollar went to zero, you would not be able to write off through inflation or even hyperinflation the near $200 trillion Washington owes.

Moreover, trade wars are usually contractionary and deflationary.

So, get ready. The great sovereign debt crisis of the 21stcentury has started. It’s a financial storm that comes around roughly every 80 years.

It can wipe out anything and everything that gets in its way. To protect your family, your wealth and health — you must have a plan.

The first step in that plan is to not touch sovereign or government bonds of any kind. Or of any country.

Best wishes,




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