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Historic Bond Bull Market

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We are basically at NASDAQ year 2000 in the bond market. Look the base rates have never been this low. Before this crisis, in the 300 year history of the BoE, the lowest base rate was 1.75%. Now we are at 0.5%.

Idiots are getting just 2.95% to buy 10 year locked American treasuries. It doesn't even phase the buyers that the country said it might default on its debt in 7 days time. Lemmings are buying UK 10 year Gilts at 3.07%. This in a country that is officially running an inflation of over 4%.

Its like when people were paying 80 times revenues for tech companies, that didn't even show a profit(and most never did). Of course when the bond bull market eventually blows up it will have much bigger consequences than a few tech companies valuations imploding.

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We are basically at NASDAQ year 2000 in the bond market. Look the base rates have never been this low. Before this crisis, in the 300 year history of the BoE, the lowest base rate was 1.75%. Now we are at 0.5%.

Idiots are getting just 2.95% to buy 10 year locked American treasuries. It doesn't even phase the buyers that the country said it might default on its debt in 7 days time. Lemmings are buying UK 10 year Gilts at 3.07%. This in a country that is officially running an inflation of over 4%.

Its like when people were paying 80 times revenues for tech companies, that didn't even show a profit(and most never did). Of course when the bond bull market eventually blows up it will have much bigger consequences than a few tech companies valuations imploding.

banks can buy defaulting bonds if they get the best rates...they dont care about default.....such is Moral Hazard.

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banks can buy defaulting bonds if they get the best rates...they dont care about default.....such is Moral Hazard.

That is a lot of it. Western banks can use essentially infinite leverage. So if they borrow at 0.6% on the interbank market, and buy every bond issued at 3%.. they make a 2.4% spread on all that money for as long as the low short term rates last.

If short term rates go way up, their bet blows up. But then they get bailed out for the difference. And the banker himself gets his bonus quarterly anyway so its irrelevant.

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That is a lot of it. Western banks can use essentially infinite leverage. So if they borrow at 0.6% on the interbank market, and buy every bond issued at 3%.. they make a 2.4% spread on all that money for as long as the low short term rates last.

If short term rates go way up, their bet blows up. But then they get bailed out for the difference. And the banker himself gets his bonus quarterly anyway so its irrelevant.

sames with stocks and commodities....they have risk free capital and can punt it all out into the "markets". If they win, they get bonuses, if they lose, they get bailouts and bonuses.

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sames with stocks and commodities....they have risk free capital and can punt it all out into the "markets". If they win, they get bonuses, if they lose, they get bailouts and bonuses.

Unbelievably, this has even been viable to retail punters in some parts of the world. Here in Hong Kong it has been very easy to borrow in excess of 100-200 thousand pounds at between 2.5-3% APR for a while. Many stocks have a dividend yield higher than this and there are even bonds and savings accounts wit higher returns. It really is free money. I dread to think how easy this is for the 'bankers' to make big bucks.

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Unbelievably, this has even been viable to retail punters in some parts of the world. Here in Hong Kong it has been very easy to borrow in excess of 100-200 thousand pounds at between 2.5-3% APR for a while. Many stocks have a dividend yield higher than this and there are even bonds and savings accounts wit higher returns. It really is free money. I dread to think how easy this is for the 'bankers' to make big bucks.

It's only free money to you if the underlying share price stays above the price you bought.

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It's only free money to you if the underlying share price stays above the price you bought.

True but if all the big players are doing it (as is happening now), its a one way bet. Stick it in Gold, blue chips, Aussie Dollars, corporate/govt bonds, take your pick, your making money for nothing. A nasty central bank ploy to enrich the idle rich and get economies moving again at the expense of the productive proles.

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In trying to stop one bust in order to achieve their short term objectives the politicians have created even greater instability.

If they'd spent the stimulus money on food stamps and let the bust correct itself when it first happened we'd be in a much better place.

It seems like there are going to be some spectacular gains and losses to be had over the next few years, both in politics and economics.

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We are basically at NASDAQ year 2000 in the bond market. Look the base rates have never been this low. Before this crisis, in the 300 year history of the BoE, the lowest base rate was 1.75%. Now we are at 0.5%.

Idiots are getting just 2.95% to buy 10 year locked American treasuries. It doesn't even phase the buyers that the country said it might default on its debt in 7 days time. Lemmings are buying UK 10 year Gilts at 3.07%. This in a country that is officially running an inflation of over 4%.

Its like when people were paying 80 times revenues for tech companies, that didn't even show a profit(and most never did). Of course when the bond bull market eventually blows up it will have much bigger consequences than a few tech companies valuations imploding.

Just who are the "idiots" who are buying ?

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Never under estimate the hubris of man. ;)

Never underestimate politicians ability to f**k us all in the quest to get re-elected.

By now the 2007 bust should have led to a fundamental rethink about government debt, but it hasn't.

All that it's led to is papering over the cracks and the denial of reality. The problem of this approach is that there is never a soft landing from it.

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It's only free money to you if the underlying share price stays above the price you bought.

WOW, A DIY carry trade.....course, undividuals dont get bailouts when their carries fail...unlike the bankers.

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Just who are the "idiots" who are buying ?

Ben Bernanke - the Fed is the single biggest holder of US Treasuries

In Britain, the Bank of England has been the main buyer of UK govt gilts

All made possible by QE, (which is not the same as printing money, so I'm reliably informed by Stef Flanders)

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Ben Bernanke - the Fed is the single biggest holder of US Treasuries

In Britain, the Bank of England has been the main buyer of UK govt gilts

All made possible by QE, (which is not the same as printing money, so I'm reliably informed by Stef Flanders)

not printing?

so we have the term..QUANTITATIVE...which means how many, and EASING, which in this case is the reverse of its normal meaning in that is means more, easing adopted because it sounds user friendly, when the easing is actually the lessining of the debt burden on overindebted banks

QE=many more=printing.

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10 Year T-Note post financial crisis

10yeartnote.jpg

Can someone explain something for me... I know that bond prices move inversely to the associated yield, but does that mean there is a maximum bond price (i.e. when the yield is zero)?

How is the price calculated?

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We are basically at NASDAQ year 2000 in the bond market. Look the base rates have never been this low. Before this crisis, in the 300 year history of the BoE, the lowest base rate was 1.75%. Now we are at 0.5%.

Idiots are getting just 2.95% to buy 10 year locked American treasuries. It doesn't even phase the buyers that the country said it might default on its debt in 7 days time. Lemmings are buying UK 10 year Gilts at 3.07%. This in a country that is officially running an inflation of over 4%.

Its like when people were paying 80 times revenues for tech companies, that didn't even show a profit(and most never did). Of course when the bond bull market eventually blows up it will have much bigger consequences than a few tech companies valuations imploding.

It would be interesting to know how many people are buying bonds out of their own money. Presumably it's mostly governments buying each others bonds, to keep the system going; banks, because that's their quid pro quo (no pun intended); and investment drones, either because they're obliged (legally or regulatorily) to buy a certain amount (pensions etc), or just because "no-one ever got fired for buying IBM".

People buying with their own hard-earned must make up about 0.001% of the market. Surely?

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Bond yields after the start of QE2 rose sharply (same thing happened after QE1). This is because money flows out of bonds into higher yielding investments when the FED is playing backstop.

I guess we should wait for QE3 before shorting bonds?

QE2-USD-Vs.-SP-Vs.-Treasury-Yield-2010-2011.jpg

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Can someone explain something for me... I know that bond prices move inversely to the associated yield, but does that mean there is a maximum bond price (i.e. when the yield is zero)?

How is the price calculated?

There are quite a lot of subtle (but not very relevant) distinctions - with various different types of bond - some with assets as collateral (convertible bonds) and some without; some pay 'coupons' - some don't; some are 'Synthetic' (i.e. manufactured from a combination of derivative instruments and cash 'in the bank') - most aren't.

The prices of bonds are (allegedly) determined exclusively by the markets. A typical bond may pay an annual coupon of 5% and be issued with a maturity of 5 years... if market yields fall, the price of this bond will rise - as it would make sense for money managers to sell their bond and buy this one (assuming the two bonds have the same risk profile, of course.) A technique called "Discounted Cash Flow Analysis" allows comparison of bonds with different coupons - given some assumptions about interest rates. A special kind of bond called a "Zero" pays no coupon - and its market price will never rationally rise above its face value... if it did, the buyer would be accepting a negative nominal return. Most commercial bonds seem to pay coupons - I guess the logic is that receipt of a coupon payment at least shows that the debtor is solvent 'right now' - so increases confidence in the borrower. For bonds with coupons, it's harder to pin down the maximum price as it's difficult to assess what will happen with interest rates in the run-up to maturity... though it is straightforward to put a bound on it - if we add all coupons to the face value - assuming all are paid immediately - this corresponds to the extreme case when interest rates are known to be exactly zero for the lifetime of the bond - where money ceases to have any time value (which would only really make sense were mankind to become inexplicably immortal and infinitely patient.) N.B. These risks are independent of (and in addition to) default risk.

The biggest uncertainty is the future interest rate... and there's some stuff on Wikipedia about this. Personally, I don't give much credit to the idea that future interest rates are random because we don't currently know what they will be... but, perhaps, that's too philosophical. Where stochastic calculus are employed to get a more sophisticated price, it is interesting to note that this implies that risk (i.e. in this context, the weighted probability that the calculated price trajectory doesn't pan-out) is proportional to the square-root of the time to maturity. This risk asymmetrically effects market participants depending upon the risk profiles that are acceptable to them. This is one of the factors that affects the so-called yield curve - the shape of which causes much interest (pardon the pun) among those who are involved in esoteric arts involving bonds.

Edited by A.steve

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We are basically at NASDAQ year 2000 in the bond market. Look the base rates have never been this low. Before this crisis, in the 300 year history of the BoE, the lowest base rate was 1.75%. Now we are at 0.5%.

Idiots are getting just 2.95% to buy 10 year locked American treasuries. It doesn't even phase the buyers that the country said it might default on its debt in 7 days time. Lemmings are buying UK 10 year Gilts at 3.07%. This in a country that is officially running an inflation of over 4%.

Its like when people were paying 80 times revenues for tech companies, that didn't even show a profit(and most never did). Of course when the bond bull market eventually blows up it will have much bigger consequences than a few tech companies valuations imploding.

the bond market is a savings market. if you have £100,000 to save you can put it in a bank. if you have £100 million in cash like many institutions do, where are you going to put it?

youre not going to put £100million in a barclays internet account thats for sure.

sometime bond markets arent about making money but storing money.

after all, businesses, make their money from their businesses. once youve made your money you just want to hold it somewhere relatively safe.

youre not really looking to make money because you can do that elsewhere. so often there isnt much choice.

there is no where else to put large amounts of money if you want to keep it relatively safe.

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there is no where else to put large amounts of money if you want to keep it relatively safe.

If a company can't invest the money - there's a strong argument that they should return it to shareholders as a dividend. :)

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If a company can't invest the money - there's a strong argument that they should return it to shareholders as a dividend. :)

Try saying that to Microsoft, Oracle, Cisco, etc...

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Can someone explain something for me... I know that bond prices move inversely to the associated yield, but does that mean there is a maximum bond price (i.e. when the yield is zero)?

How is the price calculated?

Yes, the yield reaches zero when the bond price reaches infinity. Such is the nature of inverse relationships. ;)

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It would be interesting to know how many people are buying bonds out of their own money. Presumably it's mostly governments buying each others bonds, to keep the system going; banks, because that's their quid pro quo (no pun intended); and investment drones, either because they're obliged (legally or regulatorily) to buy a certain amount (pensions etc), or just because "no-one ever got fired for buying IBM".

People buying with their own hard-earned must make up about 0.001% of the market. Surely?

Yes you are exactly right.

The bond market that is almost 100% true. Look at the outstanding treasuries and it is something like 10 trillion worth, that is not held by other US governmetn agencies. Well China has 3 trillion or so of that, and Japan 1 trillion. Along with a host of other export nations holding large amounts. They aren't buying them for any normal market reason, but instead trying to beat down the value of their own currencies.

In MMT, (modern monetary theory) the national debt is really just an accounting entry used to control the money supply. As opposed to being thought of as a debt like a private citizen would owe to a bank for example.

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The situation with high government bond prices and yields driven lower seems to be continuing and growing. I spotted this update on the subject of UK government bonds on twitter last night.

For the UK a threshold was passed today as our ten-year government bond yield closed below 3%...Dreadful value if you ask me but there it is

@notayesmansecon

Just think of it relative to inflation!

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Yes you are exactly right.

The bond market that is almost 100% true. Look at the outstanding treasuries and it is something like 10 trillion worth, that is not held by other US governmetn agencies. Well China has 3 trillion or so of that, and Japan 1 trillion. Along with a host of other export nations holding large amounts. They aren't buying them for any normal market reason, but instead trying to beat down the value of their own currencies.

In MMT, (modern monetary theory) the national debt is really just an accounting entry used to control the money supply. As opposed to being thought of as a debt like a private citizen would owe to a bank for example.

What I don't understand is that China had to accumulate that debt in order to hold down its currency and achieve its current export level. In that respect, the debt represents the difference in price between what the Chinese should have really sold the goods for, as opposed to what it did.

The money belongs to the Chinese people, but the people don't have a say in spending it AFAIKT, so I don't see why they would be so annoyed if it were wiped out. OK, the Chinese government will lose the x billion per year interest payments to spend on public services, but that would be a small price to pay for the government to maintain the system as it is, otherwise the ensuing riots that might take place as the correction rebalances and Chinese exports plumment might wreck the whole country.

To my mind the US and Chinese should deal. The US should agree to maintain its currency at a certain level in the short term. The Chinese should agree to wipe out the debt and then over the next few years both sides should agree to ensure phased rebalancing of the system takes place.

Even if this happens and the Chinese money is wiped out the Chinese will have lifted millions out of poverty and the Americans got cheap goods for an extended period of time - winners all round.

Otherwise if the unwinding happens in an uncontrolled way with the US deciding just to default because the debt represents the result of "unfair trade" the whole system will crash.

These guys need to do a deal.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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