Tag Archives: government bonds

Advice for Holders of Government Bonds, by Bill Bonner

Sell. From Bill Bonner at rogueeconomics.com:

YOUGHAL, IRELAND – U.S. Treasury bond prices got a lift on Tuesday, with the 10-year yield falling below 1.7%. (Remember, when yields go down, bond prices go up.)

In August of last year, the yield on the 10-year was only 0.51%. But since then, it has been heading up. Now, even after the recent dip, it’s still more than three times that.

And the quarter just ended was the worst for Treasuries in almost 40 years. Not since the 1980s have yields risen by so much, so fast.

That move – before investors took former Federal Reserve chairman Paul Volcker seriously – proved to be the last gasp of the last bear market in bonds, that had begun three decades earlier.

Not that we know anything you don’t know. But this latest move over the last quarter looks like the first gasp of the next one.

And investors will soon learn that their faith in current Federal Reserve chair Jerome Powell and Treasury Secretary Janet Yellen is a mistake.

A Bird in the Hand

U.S. Treasury bonds trade on the full faith and credit of the issuer – the United States of America.

We’ve been exploring the decline of the U.S. empire this week. If we’re wrong about that, we may be wrong about this, too.

Perhaps faith in the credit of the U.S. will increase. But to make a long story short, our guess is that Treasury bonds have a lot more bad quarters coming.

After all, a U.S. Treasury bond is a promise to pay the lender back with a stream of U.S. dollars. Currently, that stream is enhanced by a yield of the aforementioned 1.7%… more or less.

But it is reduced by the uncertainties of the future… and by consumer price inflation.

“A bird in the hand is worth two in the bush,” is the old expression. The ones in the bush might fly away before you get your hands on them.

And if you get hit by a runaway Amazon delivery van, you might not enjoy a single penny of the money you invested in U.S. Treasury bonds.

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How to return to sound money, by Alasdair Macleod

Alasdair Macleod outlines how the US could return to gold-backed money. From Macleod at goldmoney.com:

Given the current fiat money system is on a path towards its own destruction it is not surprising that there has been increasing talk of a monetary reset. Without a completely different approach and by retaining the same institutions and macroeconomic concepts, any such reset is bound to fail.

This article provides a template for an enduring sound money solution that will deliver economic progress while eliminating destructive credit cycles. It posits that a properly constructed gold and gold substitute monetary system, which also includes the removal of bank credit inflation as a means of providing investment capital, is the only way that lasting stability and prosperity can be achieved. As well as the establishment of an incorruptible monetary system, the state’s role in the economy must be curtailed, budgets always balanced, banking reformed, and the private sector allowed to accumulate the wealth necessary to provide the investment for producers to produce. 

Monetary reform involves a clear understanding of why free markets succeed and why socialism, together with neo-Keynesian macroeconomics, are responsible for the impending monetary and economic collapse. It will require a complete change of socio-political and economic cultures, but properly approached it can be done.


There has been very little commentary in recent years about the benefits of sound money, being limited almost entirely to followers of the Austrian school of economics. Even less has been written about how to back out of inflationism, end unsound money and return to a monetary arrangement which cannot be corrupted by governments and the banking system.

The most notable attempt was by Ludwig von Mises who appended a chapter on the subject in his updated 1952 version of The Theory of Money and Credit[i] The circumstances were very different from that of today. At that time, the US had corrupted its gold exchange standard to progressively exclude the ability of individuals to demand gold for paper dollars. And both Keynesianism and socialism, in the West at least, were in their earlier days. Today, we face more of an end game where considerable damage has been done since to the status of circulating money, and we face the prospect not of reform but of a collapse of the entire fiat money system.

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The Final Act, by Dmitry Orlov

Is the repo crisis prelude to market rejection of US government debt at anything close to current interest rate levels such that the Federal Reserve will have to monetize an ever-increasing portion of that debt? Dmitry Orlov thinks so, and he could well be right. From Orlov at cluborlov.blogspot.com:

In processing the flow of information about the goings on in the US, it is impossible to get rid of a most unsettling sense of unreality—of a population trapped in a dark cave filled with little glowing screens, all displaying different images yet all broadcasting essentially the same message. That message is that everything is fine, same as ever, and can go on and on. But whatever it is that’s going on can’t go on forever, and therefore it won’t. More specifically, a certain coal mine canary has recently died, and I want to tell you about it.

It’s easy to see why that particular message is stuck on replay even as the situation changes irrevocably. As of 2019, 90% of the media in the United States is controlled by four media conglomerates: Comcast (via NBCUniversal), Disney, ViacomCBS (controlled by National Amusements), and AT&T (via WarnerMedia). Together they have formed a corporate media monoculture designed to most effectively maximize shareholder value.

As I wrote in Reinventing Collapse in 2008, “…In a consumer society, anything that puts people off their shopping is dangerously disruptive, and all consumers sense this. Any expression of the truth about our lack of prospects for continued existence as a highly developed, prosperous industrial society is disruptive to the consumerist collective unconscious. There is a herd instinct to reject it, and therefore it fails, not through any overt action, but by failing to turn a profit because it is unpopular.”

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The Rules of the Bond Game, by Victor Sperandeo

Banks keep buying government bonds because if they hold them to maturity, they earn the spread between the bonds’ interest and their financing costs, and they don’t have to mark the prices of the bonds to market. From Victor Sperandeo at epochtimes.com:

There are powerful incentives for private banks to keep buying Treasurys despite rising supply and inflation

American hard money advocate, economist, and publisher Franz Pick once called government bonds “Guaranteed Certificates of Confiscation.” In making that statement, he assumed the government would eventually inflate the debt away and thus confiscate the buyers’ purchasing power.

Yet here we are, with U.S. Treasury Bonds holding steady despite seven rate hikes by the U.S. Federal Reserve, huge increases in the supply of bonds, and inflation on the rise. The obvious question is, why?

The reason why government debt keeps increasing and yields are more or less stable isn’t because of the fundamentals of the debt, deficit, or the economy. Instead, it is because the rules of the bond game are written by the banks, for the banks.

In my first book, “Methods of a Wall Street Master,” I introduced “The Gamboni.” Joe is a skilled poker player, but when he sits down at a new game, he has not learned the rules of the house, which include a special set of winning cards called “The Gamboni.” He therefore loses and goes broke. The moral of that story: If you want to win a game, you have to know the rules.

This moral holds true today and is especially applicable to the bond market.

To continue reading: The Rules of the Bond Game

Bond Panic Spreads, by Bill Bonner

The bond market, having topped in July, 2016, is leading the stock market, which may have topped last month. Bonds usually lead stocks. Higher interest rates will certainly not help the economy. From Bill Bonner at bonnerandpartners.com:

CORK, IRELAND – “U.S. Stocks Drop as Treasury Sell-Off Gains Steam,” was headline news at Bloomberg yesterday.

Meanwhile, bitcoin tumbled toward $8,000, wiping about $100 billion off its market value in just 24 hours.

And the price of the 10-year Treasury note dived, driving up its yield to above the 2.75% mark.

Already, the 30-year fixed mortgage rate – which gets its cue from the 10-year T-note yield – has jumped from 3.7% a year ago to 4.2% today.

On a $200,000 mortgage, that comes to about the same amount as the savings promised in the tax cut.

World of Hurt

The feds giveth; the feds taketh away…

…and the feds maketh a mess of things.

They have engineered a grotesquely exaggerated credit cycle – holding short-term interest rates below the rate of inflation for far too long.

They’ve been giving out free money, in other words.

Now they have an economy burdened by far too much debt… just as the credit cycle turns.

A few basis points doesn’t seem like much. But when you have to borrow, every extra basis point (one one-hundredth of a percentage point) hurts. And when you have $67 trillion in debt, a few basis points can be a disaster.

To be more precise, a one-basis point increase in carrying costs would add $6.7 billion to the nation’s annual interest rate charge.

In Tuesday’s Diary, we looked at how the U.S. government is going to be in a world of hurt when interest rates rise to a modest 5%.

We said it would add $600 billion to the cost of carrying $30 trillion of debt, which is the expected government debt level within 10 years.

A dear reader wrote in to wonder where we went to school. If all the $30 trillion yielded 5%, it would be a total extra annual interest charge of $1.5 trillion, not $600 billion. If the dear reader is right, the situation is even worse than we thought.

The feds collect about $3.5 trillion in tax revenue. So you can see why paying so much interest would be out of the question.

To continue reading: Bond Panic Spreads

They’re Back—Long Live The Bond Vigilantes! by David Stockman

If the bond market has begun a new, long-running bear market, the bond vigilantes will be riding in force. From David Stockman at lewrockwell.com:

Most of today’s stock speculators don’t remember the bond vigilantes and wouldn’t even recognize one in the flesh. They were just too scary to have been a character on Sesame Street.

But last night some strange riders were spotted galloping eastward from China and Japan. While their visage may be somewhat foggy to the uninitiated, the boys and girls on Wall Street are about to discover that it’s not exactly Big Bird swooping onto their playground.

And at precisely the worst time. After all, the 150 Dow point melt-up each day since the turn of the year was fueled by pure speculative momentum. As Heisenberg noted this AM, the S&P 500 has posted one of the longest stretches without a 5% drawdown in recorded history.


Likewise, the weekly RSI for the S&P 500 is now the most overbought since 1959. That is to say, since the days when the great team of President Dwight Eisenhower and Fed Chairman William McChesney Martin saw to it that the Federal budget was balanced and that the Fed’s punch bowl didn’t linger down on Wall Street when the revilers got too frisky.

Needless to say, back then there were no bond vigilantes, either, because they weren’t needed. UST’s got priced in the bond pits by investors and savers who didn’t cotton to either inflation or fiscal profligacy. And after the Treasury-Fed Accord of 1951, they would have been just plain horrified by any attempt from the Eccles Building to tamper with UST bond prices or the yield curve.

That’s another way to say that the bond market was healthy, stable and efficient because it was driven by real money investors deploying private savings from income and production, not fiat credits issued by the Fed’s printing presses in the manner of QE.


As it happened, real money savers were destroyed by Arthur Burns and William Miller during the 1970s. That’s because these two Fed chairman—one cowardly and the other clueless—-bent to White House based political bullying and Keynesian economic advice, which was approximately the same thing.

To continue reading: They’re Back—Long Live The Bond Vigilantes!