Nothing will bring the whole leveraged financial fantasy to a halt quicker than rising interest rates. The move in European sovereign debt is getting interesting. From Wolf Richter, at wolfstreet.com:
The EU’s top regulator for insurers and pension funds, the EIOPA, wasn’t kidding when it warned that the ECB’s €60-billion a month money-printing and bond-buying binge was triggering treacherous “volatility” in the bond markets. “Volatility” isn’t actually the right word. It implies ups and downs. But since QE started in March, euro sovereign bonds have experienced a brutal rout, interspersed with brief periods of calm just long enough for investors to lick their wounds, followed by a brutal rout yesterday and today.
On Tuesday, ahead of the ECB’s policy announcement today, German Bunds sagged, and the 10-year yield soared from 0.54% to 0.72%, drawing a squiggly diagonal line across the chart. In just one day, yield increased by one-third!
Makes you wonder to which well-connected hedge funds the ECB had once again leaked its policy statement and the all-important speech by ECB President Mario Draghi that the rest of us got see today.
And today, the German 10-year yield jump to 0.89%, the highest since October last year. From the low in mid-April of 0.05% to today’s 0.89% in just seven weeks! Bond prices, in turn, have plunged! This is the definition of a “rout.”
Other euro sovereign bonds have gone through a similar rout, with the Spanish 10-year yield soaring from 1.05% in March to 2.07% today, and the Italian 10-year yields jumping from a low in March of 1.03% to 2.17% now.
Investors who’d bought into the ECB’s deflation hype and into the panic instigated by inflation-loving mainstream economists – including the folks at the IMF – and that the ECB would have to expand its QE program, and that interest rates would drop ever deeper into the negative to where everyone would eventually be paid to borrow money, well, those gullible investors who bought these bonds late last year or early this year, or even during the dip last week, they’re now getting their clocks cleaned.
http://wolfstreet.com/2015/06/03/euro-bond-market-rout-spirals-out-of-ecbs-control/
To continue reading: Bond Market Rout Spirals out of ECB’s Control
