Sunday, July 7, 2013

Bond Bubbles Popping?

For years now central banks around the world have been making new money and buying bonds to drive up the price of bonds and down interest rates.   In the short term central banks can make interest rates go down, but in the long run all the new money they make while doing this will cause interest rates to go up.   I think we might be going from short run to long run.

Another way to look at it is that central banks have spent trillions driving up the prices for bonds.  This has made bond bubbles all over the world.  At some point these bond bubbles will pop.  We may be seeing the start of that pop now.

Interest rates in many countries have been going up fast the last couple months and bond prices are falling.


  1. Interesting charts, I agree - however I agree with Peter Schiff. I think we'll see the US Fed Reserve not only refuse to taper, but they will ramp up the purchase of bonds - adding further fuel to the potential inflationary fire.

    Or even if they do taper, that would start sending interest rates up (just see how much panic the market went into at the Fed's mere mention of tapering) - and then the Fed would start buying more bonds in response to that.

    Lastly, Rob Murphy has interesting comments here: he mentions that an additional 80bps shift from June 15 levels would wipe o ut the mark-to-market cushion putting the Fed in negative equity.

    1. I agree with Peter too. I don't think they will taper but ramp up instead.

      Once the Fed is losing money it will stop "handing over profits to the Treasury" which makes the deficit a bit worse.


Looking for polite debate on ideas. Never attack a person. Be nice.