Tag Archives: European bonds

Will The Real Bond King Stand Up? by The Global Macro Monitor

Jeff Gundlach, the best bond fund manager in America, is short-term bullish, long-term bearish on bonds. From The Global Macro monitor at macromon.wordpress.com:

We get it.

Jeff Gundlach (we are some of his biggest fans) is a trader at heart, as are we, and is very cognizant of short-term market technicals.

He recently tweeted,

However, it was only June he stated

So it’s eye-catching, then, that Gundlach reiterated in a webcast on Tuesday his call that the 10-year Treasury yield would rise to 6 percent by 2020 or 2021. “We’re right on track” for that, he said. As a reminder, that would be the highest yield since 2000.

His reasoning is fairly straightforward. The combination of rising U.S. interest rates and fiscal deficits is like a “suicide mission,” he said in the webcast, escalating the intensity from last month when he referred to the trend as a “pretty dangerous cocktail.” Ultimately, the debt burden will rise to such a level that borrowing costs will surge, in his estimation. That hasn’t happened yet because ultra-low German yields are capping how much Treasuries can sell off.   Bloomberg

Wow,  6 frickin’ percent!

Two Views Are Consistent

We are with Jeff.

In the near term, the bond shorts may be scorched (or may not) with their record off-side position but given time long-term interest rates are going much higher than the markets believe.  Deteriorating flow technicals will bring term premia back with a vengeance.

European Bond Bubble

The trigger will most likely be the bursting of the European bond bubble.

The Portuguese 10-year trading at half the yield of the 10-year U.S. Treasury?   Come on, man,   Are you serious?

When Super Mario takes his foot off the pedal, turn out the lights on those holding the Spanish 2-year at -0.327 percent, or the 10-year bund at 0.34 percent.

To continue reading: Will The Real Bond King Stand Up?

Forget Stocks, Look At EU Bonds – They Are The Real Problem, by Tom Luongo

European bonds may be the biggest central bank-blown bubble in the world. From Tom Luongo at tomluongo.me:

I’ve been banging on for months along with Martin Armstrong that the real problemoverhanging these markets is not an over-priced U.S. equity market.  That’s a sympton of a much bigger problem.

The real problem is an over-valued European sovereign bond market.

Looking at today’s bond market we see technical breakouts on yields to the upside across the continent.  And we’re not talking the usual suspects here, like Italy, Portugal or Greece.

No, we’re talking about Germany.


Note the cluster of resistance at 0.5%.  The market rejected taking yields on German 10 year debt above that level no less than six times in the past fifteen months.

Today, yields are at 0.685% and tomorrow is the end of the month.  Looks like we’re going to get a major bearish signal in German debt tomorrow.

While all the headlines are agog with stories about the Dow Jones dropping a couple hundreds points off an all-time high, German bunds are getting killed right before our eyes.

The Dow is simply a market overdue for a meaningful correction in a primary bull market.  And it’s a primary bull market brought on by a slow-moving sovereign debt crisis that will engulf Europe.

It’s not the end of the story.  Hell, the Dow isn’t even a major character in the story.

In fact, similar stories are being written in French 10 year debt, Dutch 10 year debt, and Swiss 10 year debt. These are the safe-havens in the European sovereign debt markets.

Meanwhile, Italian 10 year debt?  Still range-bound.  Portuguese 10 year debt?  Near all-time high prices.  The same this is there with Spain’s debt.  All volatility stamped out.


Simple.  The ECB.

To continue reading: Forget Stocks, Look At EU Bonds – They Are The Real Problem

ECB Spawned Mass Culture of Financial Dependency that’s Now Very Hard to Undo, by Don Quijones

The ECB has become many European governments’ biggest creditor. That presents a problem, because sane private lenders will not lend to these government at the ECB’s ultra-low and negative interest rates. From Don Quijones at wolfstreet.com:

Right at the front of the monetary welfare queue is the government of Italy.

As the Eurozone economy continues to grow, pressure is rising on Europe’s biggest bond buyer, the ECB, to withdraw from the market, a process it has already begun. No one believes that more than the head of Germany’s Bundesbank, Jens Weidmann, who recently told Spanish newspaper El Mundo that the ECB should soon set a date to end its multi-trillion euro asset-buying program.

”The prospects for the evolution of prices correspond to a return of inflation to a level sufficient to maintain the stability of prices,” he said. “For this reason, in my opinion, it would be justifiable to put a clear end to the buying of bonds by establishing a concrete date (for ending the program).”

Weidmann, who is hotly tipped to replace Draghi in 2019, has been one of the most vocal critics of the ECB’s QE program.

“Central banks have become the largest creditors of nation states,” Weidmann noted. “With our program of bond purchases, the financing conditions of Member States depend much more directly on monetary policy than in normal times. This could lead to political pressure on the ECB board to maintain lax monetary policy for longer than would in fact be justified from the perspective of price stability.”

Though it has lowered its asset purchases to €30 billion a month, the ECB has pledged to keep buying until at least September. But with the Eurozone economy growing faster than it has since the crisis and inflation comfortably above 1%, the ECB is widely expected to wind down the program thereafter. “If the economy continues to do so well, we could let the program run out in 2018,” ECB rate-setter Ewald Nowotny told Sueddeutsche Zeitung.

But what would that mean for the countries, companies, and banks that have grown to depend so much on the ECB’s extraordinary largesse?

To continue reading; ECB Spawned Mass Culture of Financial Dependency that’s Now Very Hard to Undo

Europe’s Debt Erases $160 Billion on Path to Record Weekly Loss, by Cecil Gutscher and Kevin Buckland

A touch of sanity hit European debt markets this week. From Cecil Gutscher and Kevin Buckland, at Bloomberg, via stockmanscontracorner.com:

Investors revolting against negative yields in Europe wiped 142 billion euros ($160 billion) off the value of the region’s government bonds this week, heading for the biggest selloff since at least October 1993.

With Bill Gross and DoubleLine Capital’s Jeffrey Gundlach among investors saying its time to sell bunds, the value of European bonds dropped to 5.75 trillion euros Thursday, the least since March 4, Bank of America Merrill Lynch data show. Germany’s 10-year yields completed their biggest two-day climb since November 2011 as signs of euro-area inflation prompted traders to pare bets the European Central Bank’s quantitative easing will drive up prices on the continent’s benchmark debt.

“Yields had gotten to levels where any investor who had discretion around where they want to put their money would not want to own these bonds as a long-term proposition,” said Peter Jolly, the Sydney-based head of market research at National Australia Bank Ltd., the nation’s largest lender by assets. “It was always unreasonable to my mind that, just because the ECB was buying bonds, that yields had to be jammed to the floor.”

German 10-year yields surged 20 basis points, or 0.2 percentage point, in two days to close at 0.37 percent on Thursday. That’s up from an unprecedented 0.049 percent reached April 17.

The ECB’s 1.1 trillion-euro quantitative-easing program gives cause to avoid the region’s government bonds, said Steven Wieting, global chief investment strategist in New York at Citigroup Inc.’s private bank. Wieting said on April 29 the bank cut allocation to German bunds in favor of U.S. Treasuries in the five- to seven-year range.


To continue reading: Europe’s Debt Record Weekly Loss