Tag Archives: interest rates

Who Bought the $6.5 Trillion in Treasuries Piled on the Incredibly Spiking US Debt in 22 Months? Who Holds the $30 Trillion? By Wolf Richter

Posted on February 18, 2022 | Leave a comment

The banks and the Federal Reserve have been absorbing Treasuries, and virtually guaranteed losses. From Wolf Richter at wolfstreet.com:

The question is particularly hot because Treasuries are now ugly instruments with the worst punishment yields ever.

In face of the incredibly spiking US gross national debt that just hit $30 trillion after having spiked by a mind-boggling $6.5 trillion since March 2020, the steamy-hot question is this: Who the heck is buying and holding all these Treasury securities?

The question is particularly hot because these are very unattractive instruments: Yields are still well below 1% for most short-term Treasury bills, and even the 10-year Treasury maturity yields only around 2%, while CPI inflation has blasted off and hit 7.5%, creating the worst punishment yields ever. To top it off, the most reckless Fed ever is still repressing interest rates and is still, though at a much slower pace, printing money.

The whole thing is a tragic clown-show, and yet every single one of the Treasury securities was bought and is held by some entity. Who are they? This is my quarterly update on who is holding this debt, and it’s an increasingly important question for increasingly iffy times.

Foreign Creditors of the US government.

Foreign holders of Treasuries: $7.74 trillion, a record, up by $790 billion (+11%) since March 2020, and up 9.5% year-over-year, according to the Treasury Department’s Treasury International Capital (TIC) data.

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Central banks are now insolvent, by Alasdair Macleod

Posted on February 18, 2022 | Leave a comment

How about that, central banks can go broke. From Alasdair Macleod at goldmoney.com:

Behind the battle to convince everyone that price inflation is not a lasting problem is the necessity to keep interest rates and bond yields suppressed. In the past, the interest rate cycle was entirely due to the expansion and contraction of commercial bank credit. But that was before central banks built up bond portfolios through quantitative easing.

Not only does this expose them to the interest rate cycle, but they have not increased their capital base to keep pace with the expansion of their balance sheets. Hence the problem with rising interest rates and bond yields: on a mark-to-market basis the major central banks are insolvent with balance sheet liabilities now exceeding their assets.

This article finds this condition true of the Bank of England, the Federal Reserve Board, the Bank of Japan, and the entire euro system. Other central banks are not examined.

Doubtless this will be resolved in the short term by governments investing more equity in their central banks. But there is one major exception, which is the ECB and the euro system, with all its shareholders sinking into negative equity with the only minor exceptions of the Irish, Maltese, and Slovenian central banks.

Consequently, with the interconnectedness of the global financial system, the ability of central banks to guarantee the survival of their own commercial banking networks has almost certainly ended due to a collapse of the euro system. The precedent is the failure of a prototype central bank in 1720, John Law’s Banque Royale. That experience allows us to see how this is likely to play out.

Introduction

There is a widespread assumption that commercial banks bear risk while central banks bear none. Folding notes are superior to bank deposits for this reason. It is commercial banks which fail, and central banks that rescue the ones worth rescuing. They are the lenders of last resort.

As such, their financial integrity goes unquestioned. Of course, we do not usually include central banks in emerging nations in this statement, but any risk is always perceived to be in their currencies rather than the institution. We know that the Reserve Bank of Zimbabwe can and does run some unconventional monetary policies, but you won’t hear the RBZ’s survival being questioned. It is generally assumed that in any nation a central bank that can issue its currency in unlimited quantities can never go bust, and that is why it is the currency that fails, and not the institution.

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Mortgage Rates Hit 4.02%. Two-Year Yield Spikes by Most since 2009. Ten-Year Yield Goes over 2%. All Heck Breaks Loose, by Wolf Richter

Posted on February 11, 2022 | Leave a comment

The bull market in interest rates (the bear market in bonds) gathers steams. From Wolf Richter at wolfstreet.com:

Yields and rate-hike expectations spike. A rate hike now?

The probability of a 50 basis-point hike at the FOMC meeting on March 16 spiked to 90% this afternoon, based on CME 30-Day Fed Fund futures prices, after this morning’s hair-raising inflation data for January, and after St. Louis Fed President Bullard’s talk on Bloomberg. The spike in inflation is now infesting services and has spread deep and wide into the economy. A 50-basis-point hike would bring the Fed’s target range for the federal funds rate to range between .50% and 0.75% (Fed Rate Hike Monitor via Investing.com):

“There was a time when the Committee would have reacted to something like this [the hair-raising inflation report] with having a meeting right now and doing a 25 basis points right now,” said Bullard, formerly biggest dove in the house. “I think we should be nimble and considering that kind of thing,” he said.

“I don’t think this is shock-and-awe,” Bullard said about the 50-basis point hike, as markets are already pricing it in. “I think it’s a sensible response to a surprise inflationary shock that we got in 2021 that we did not expect,” he said.

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Blowups and an Epic Mega-Catastrophe are Coming, by MN Gordon

Posted on February 11, 2022 | Leave a comment

Rising interest rates will spark a catastrophic financial crash. From MN Gordon at economicprism.com:

“Let no man deceive you by any means…” counsels the Good Book (2 Thessalonians 2:3).

As we understand it, Apostle Paul, if that’s in fact the author, was attempting to correct some misinformation floating around Thessalonica in first century Greece.  Someone – perhaps a bureaucrat – was spreading rumors that Christ had already returned.

Paul didn’t buy it.  He clarified that the Anti-Christ would first appear and proclaim himself God.

Did Paul know what he was talking about?  Has the Anti-Christ appeared, yet?

Last year Dr. Anthony Fauci proclaimed himself “the science”.  Thus, he may not have proclaimed himself God.  But he is something gawdawful.

Much like Joe Rogan, and his pains to correct misinformation spread by Fauci, Paul had many enemies and detractors.  Which is fine.

The pursuit of truth is rarely a popular path.  Just ask the ghost of John T. Flynn.  Telling the truth is a most excellent way to make enemies in high places.

Mundus vult decipi, ergo decipiatur – The world wants to be deceived, so let it be deceived.

And why not?

It’s much more agreeable to believe U.S. Treasuries are the safest – default free – investment in the world than certificates of guaranteed confiscation.  It flatters a cabinet member’s ego to believe American exceptionalism is something other than a banana republic with a big military.

These days, individuals like John Locke, who “love truth for truth’s sake,” are far and away in the minority.  But just because the truth’s not popular, doesn’t mean it should be disparaged.

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Can the US Government Afford Higher Interest Rates? You Bet. $67 Trillion “Fixed Income” Assets Will Generate Higher Incomes & Tax Revenues, Boost Secondary Effects, by Wolf Richter

Posted on February 7, 2022 | Leave a comment

Higher interest rates may not be an unmitigated disaster for the world’s largest debtor. From Wolf Richter at wolfstreet.com:

Bring them on. Financial Repression has a huge cost.

Yields have been rising in anticipation of a tightening cycle, and they will rise further when the Fed actually raises rates and engages in quantitative tightening (QT). Rising yields reduce bond prices for investors who sell those bonds. Investors that hold bonds to maturity earn the yield at which they purchased the security, and at maturity they get paid face value. A few hedge funds might blow up along the way because their highly leveraged bets went awry. So for current bondholders, a tightening cycle is not pretty.

But for future bond buyers and for savers, a whole new world opens up: a world with more income. And this higher income will throw off more tax revenues for governments. So how much money are we talking about here? $67 trillion in assets that will generate higher incomes.

There has been a lot of talk how the Fed can never raise interest rates because of x,y, and z, and how the Fed can never do QT because of x,y, and z. And one of the reasons often cited is that the US government wouldn’t be able to afford the higher interest payments. But that’s a red herring.

First, the US government issues its own currency and can always pay for anything with the Fed’s newly created money. The Federal Reserve Board of Governors, of which Powell is Chair Pro Tempore, is an agency of the US government. So the US won’t ever run out of money, but the dollar might run out of purchasing power – the trade-off that is now particularly ugly.

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Rough Day in the Bond Market: Treasury Yields Spike, 30-Year Fixed Mortgage Rate Nears 4%. Where’s the Magic Number? By Wolf Richter

Posted on February 6, 2022 | Leave a comment

It is SLL’s firmly held conviction that bonds are currently the worst investment of a very bad lot. The bond market will have many rough days during what SLL predicts will be a multi-year bear. From  Wolf Richter at wolfstreet.com:

Fed’s coming tightening cycle sinks in, amid still brutally negative “real” yields, as bonds’ purchasing power gets eaten up by inflation.

Bond fireworks lit up the sky on Friday, following the release of the jobs report that dashed fervent hopes in the bond market that crummy employment numbers would cause the Fed to back off its rate-hike tango before it even gets started. Over the past few days, reports were bandied about that explained why the jobs number would be anything from dismally low to hugely negative. But the numbers were far better than expected – they were actually pretty good for all kinds of reasons – and instantly yields spiked and mortgage rates shot higher.

The two-year Treasury yield spiked 13 basis points to 1.32%, the biggest one-day jump since the turmoil on March 10, 2020, and the highest since February 21, 2020:

The one-year yield spiked 11 basis points to 0.89%. This is up from near-0% in September last year. Over those five months, the world has changed.

The one-year yield and the two-year yield are particularly sensitive to the market’s outlook for monetary policy changes by the Fed – namely the dreaded rate hikes this year and next year, as CPI inflation has hit 7.0%.

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Treasury Yields & Mortgage Rates Spike: Markets Begin to Grapple with Quantitative Tightening, by Wolf Richter

Posted on January 9, 2022 | Leave a comment

Unless we get massive deflation in a hurry (unlikely) bonds may be the single worst investment out there. From Wolf Richter at wolfstreet.com:

The two-year Treasury yield started rising in late September, from about 0.23%, and ended the year at 0.73%. In the five trading days since then, it jumped to 0.87%, the highest since February 28, 2020. Most of the jump occurred on Wednesday and Thursday, triggered by the hawkish Fed minutes on Wednesday.

Markets are finally and in baby steps starting to take the Fed seriously. And the most reckless Fed ever – it’s still printing money hand-over-fist and repressing short-term interest rates to near 0%, despite the worst inflation in 40 years – is finally and in baby steps, after some kind of come-to-Jesus moment late last year, starting to take inflation seriously. Treasury yields are now responding:

Jawboning about Quantitative Tightening.

Even though the Fed hasn’t actually done any hawkish thing, and is still printing money and repressing interest rates to near 0%, it is laying the groundwork with innumerable warnings all over the place, from the FOMC post-meeting presser on December 15, when Powell said everything would move faster, to hawkish speeches by Fed governors, to the very hawkish minutes of the FOMC meeting, which put Quantitative Tightening in black-and-white.

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Money supply and rising interest rates, by Alasdair Macleod

Posted on January 7, 2022 | Leave a comment

Inflate the money supply enough and sooner or later you’ll have rising interest rates keeping up with rising prices. From Alasdair Macleod at goldmoney.com:

The establishment, including the state, central banks and most investors are thoroughly Keynesian, the latter category having profited greatly in recent decades from their slavish following of the common meme.

That is about to change. The world of continual Keynesian stimulus is coming to its inevitable end with prices rising beyond the authorities’ control. Being blinded by neo-Keynesian beliefs, no one is prepared for it.

This article explains why interest rates are set to rise substantially in this new year. It draws on evidence from the inflation crisis of the 1970s, points out the similarities and the fact that currency debasement today is far greater and more global than fifty years ago. In the UK, half the current rate of monetary inflation for half the time — just for one year — led to gilt coupons of over 15%. And today we have Fed watchers who can only envisage a Fed funds rate climbing to 2% at most…

A key factor will be the discrediting of this Keynesian hopium, likely to be replaced by a belated conversion to the monetarism that propelled Milton Friedman into the public eye when the same thing happened in the mid-seventies. The realisation that inflation is always and everywhere a monetary phenomenon will come too late for policy makers to stop it.

The situation is closely examined for America, its debt, and its dollar. But the problems do not stop there: the risks to the global system of fiat currencies and credit from rising interest rates and the debt traps that will be sprung are acute everywhere.

Introduction

Clearly, the outlook is for higher dollar interest rates. The Fed is trying to persuade markets that it is a temporary phenomenon requiring only modest action and that while inflation, by which the authorities mean rising prices, is unexpectedly high, when things return to normal it will be back down to a little over two per cent. There’s no need to panic, and this view is widely supported by the entire investment industry.

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2022: More Stupidity, More Arrogance, More Evil, More Rebellion, by Robert Gore

Posted on December 31, 2021 | 34 comments

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Chaos will reign as the future upends the past. Chaos doesn’t lend itself to prediction.

Stupidity, arrogance, and evil ultimately destroy themselves, but their rampage was unabated in 2021. A group of stupid, arrogant, and evil people are using a virus and its variants to shepherd the world into a scheme of totalitarian global governance. This was conspiracy theory when the virus first surfaced; now it’s nakedly obvious reality. The one redeeming feature of the year was that more people saw the light.

The self-impressed and self-anointed rule not by claim of divine right, but by claim of superior intelligence and virtue. Real intelligence and virtue hope to find the same in other people; our commissars prey on human weakness. Fear and panic are their allies, truth and rationality their enemies.

As word leaks out of Covid outbreaks on 100 percent vaccinated college campuses, sports teams, naval vessels, and cruise ships, and as fully vaccinated athletes drop incapacitated or dead in front of stadiums full of people and millions of TV viewers, the truth that can’t be hidden is grasped by anyone with a shred of intellectual integrity. The vaccines have failed their ostensible purpose, to protect against the virus and its variants. They have, however, admirably fulfilled their real purpose: a totalitarian grab for power and control.

The coming year will see attempts to institute the rest of the agenda: mandatory vaccination, implanted vaccine passport microchips, fully digitized money, a social credit system, and segregation or elimination for those who refuse to play along. The coming year will also see the inexorable progress of the Doom Loop described in “The Means Are The End.”

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The vaccines and their perpetual boosters are an intentional attack on the human immune system. They will continue to produce their adverse effects, including impaired natural immune system functionality, which increases susceptibility not just to Covid and variants, but to many other maladies as well. Early indications are that the omicron variant is more likely to strike the vaccinated than the unvaccinated.

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Will Fed Crash Global Financial Markets for Their Great Reset? By F. William Engdahl

Posted on December 18, 2021 | Leave a comment

With or without the Fed global financial markets are headed for a crash. From F. William Engdahl at williamengdahl.com:

t’s looking increasingly likely that the US Federal Reserve and the globalist powers that be will use the dramatic rising of inflation as their excuse to bring down the US financial markets and with it, crash the greatest financial bubble in history. The enormous inflation rise since the malicious political lockdowns and the trillions of dollars in emergency spending by both Trump and Biden, coupled with the continuation of the Fed’s unprecedented near-zero interest rate policies and asset purchases of billions in bonds to keep the bubble inflated a bit longer– have set the stage for an imminent market collapse. Unlike what we are told, it is deliberate and managed .

Supply chain disruptions from Asia to normal truck transport across North America are feeding the worst inflation in four decades in the USA. The stage is set for the central banks to bring down the debt-bloated system and prepare their Great Reset of the world financial system. However this is not an issue of inflation as some mysterious or “temporary” process.

The context is key. The decision to crash the financial system is being prepared amid the far-reaching global pandemic measures that have devastated the world economy since early 2020. It is coming as the NATO powers, led by the Biden Administration, are tipping the world into a potential World War by miscalculation. They are pouring arms and advisers into Ukraine provoking a response by Russia. They are escalating pressures on China over Taiwan, and waging proxy wars against China in Ethiopia and Horn of Africa and countless other locations.

The looming collapse of the dollar system, which will bring down most of the world with it owing to debt ties, will come as the major industrial nations go fully into economic self-destruction via their so-called Green New Deal in the EU, and USA and beyond. The ludicrous Zero Carbon policies to phase out coal, oil, gas and even nuclear have already brought the EU electric grid to the brink of major power blackouts this winter as dependency on unreliable wind and solar make up a major part of the grid. On December 31, the “green” new German government oversees the forced closing of three nuclear power plants that generate the electricity equivalent of the entire country of Denmark. Wind and solar can in no way fill the gaps. In the USA Biden’s misnamed Build Back Better policies have driven fuel coats to record highs. To raise interest rates in this conjuncture will devastate the entire world, which seems to be precisely the plan.

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