I’ve been watching bond/treasury yields for a while now and they keep spiking up no matter what governments say/do about them. The flip side of this is the massive falls in value of some bonds which must leave some institutional investors hopelessly insolvent at current valuations:
A sell-off in global bonds is accelerating as Moody’s downgrade of U.S. credit rating and President Donald Trump’s tax bill has brought to fore investors’ fiscal concerns globally.
I’m beginning to see a financial crisis in the making
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Doug Noland has been writing “The Credit Bubble Bulletin” for over 20 years.
There is certainly a credit bubble supported by the Federal Reserve. Now that the Fed is gradually withdrawing its QE and the rest of the world is moving away from U.S. debt at the same time as deficits are rising…it’s only a matter of time.
But the indicators aren’t showing a crisis…yet.
Wendy
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I have only once bought bond etf’s, and that was for a trade ( it worked, made some money years back ) but it would seem the current environment would be a really bad time to buy them. Inflation pressure, no matter what nonsense the current admin spouts about the foreign countries being the ones who pay the tariffs. Inflation pressure tilts the Fed toward raising rates, not lowering them. But, the current admin could save us from Fed rate hikes by leading us into a recession, so we got that going for us, lol
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I’ve only done bond funds once and the was in the fall of 2008 during the stock market ‘waterfall’. I bought half a dozen closed end bond funds selling at very large discounts to net asset value. It worked out well, but I wouldn’t do it at this time.
DB2
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“It worked out well, but I wouldn’t do it at this time.”
I agree, it doesn’t seem like the Fed has the same latitude/ability to take rates down to zero, like they did back then.
You must have made out well, owning bond funds prior to rates being taken to zero. I did real well in Covid, but by going hard into stocks. Just looked at graph of Fed fund rates, the spike down in 2019 would have been a good time to be getting into bond funds.
But barring a recession, I don’t see the Fed lowering rates.
Federal Funds Rate - 62 Year Historical Chart | MacroTrends
Markets will be paying attention to the 40-year JBG auction tomorrow.
“Heavily indebted Japan’s government bonds are the “canary in the global duration coalmine,” Goldman Sachs analysts wrote last week after poor demand at a sale of 20-year bonds.”
A bubble is something that develops in a short-term, and moves up sharply. US debt is not a credit bubble by that definition. I can understand the reluctance to buy bond funds, as they may lose value, due to mark-to-market.
My own view is “higher for longer” meaning Fed may not cut rates, economy will be doing okay, tariff may cause inflation all leading to “higher for longer”. But US debt situation is fine. Remember US has some of the most profitable companies in the world. US can easily raise 100’s of billions by increasing tax on them, instead they are choosing to tax individuals via tariff. I view tariff as a national sales tax and potentially it may result in raising $500 to $700 B.
The volatility and interest rate movement are offering opportunities for those who want to take risk and nimble. The $TLT i bought last week already moved up 2%, i.e., in a world of annual yield at 4.5% to 5% making 2% in few days is great; Hence I closed half the position today.
I am not suggesting folks to trade or make bets on interest rate movement, just highlighting, sentiments are very negative at the bottom.