We Are Facing Another Global Financial Crisis Of Epic Proportions

[ManVsRecession]

The banks are presumably eyeing the millions of potential borrowers currently fleeing the wars in Syria and elsewhere.

[evetsm]

You being one of them it seems

The ECB may start to run low on eligible bonds to buy, but they may just extend the remit.

Anyway, not sure how that relates to the FED or BoE talking about tightening.

inane statement.

because the QE of the FED and BoE is 4 years old already. They ran into bond supply problems years ago. The ECB QE is only 5 months old and they're already running into supply problems.

Since you know all about bonds, please explain why there CANNOT be a supply shortage during QE? Do you even know what QE is(at least as officially espoused) ?

[_CC_]

inane statement.

because the QE of the FED and BoE is 4 years old already. They ran into bond supply problems years ago. The ECB QE is only 5 months old and they're already running into supply problems.

Since you know all about bonds, please explain why there CANNOT be a supply shortage during QE? Do you even know what QE is(at least as officially espoused) ?

No-one said there can't be a supply shortage of certain types of bonds

You said talk of raising rates were designed to "shake" bonds into circulation, which is pure bonkers. It would have the opposite effect to what is desired by the QE program.

Cool theory though.

[dances with sheeple]

The banks are presumably eyeing the millions of potential borrowers currently fleeing the wars in Syria and elsewhere.

Yep, maybe, but you need a HPC to make them viable though?

[evetsm]

02

No-one said there can't be a supply shortage of certain types of bonds :wacko:02

02

You said talk of raising rates were designed to "shake" bonds into circulation, which is pure bonkers. It would have the opposite effect to what is desired by the QE program.

02

Cool theory though.

you see , you incriminate yourself.

what happens when rates rise ? bond prices(premiums) fall and stops get hit and that triggers a selling cascade. That is shaking the bond tree. It's the same in the stock market, which in aggregate acts like a giant bond with dividends being the yield. Selling triggers selling until its exhausted for the move.

[_CC_]

you see , you incriminate yourself.

what happens when rates rise ? bond prices(premiums) fall and stops get hit and that triggers a selling cascade. That is shaking the bond tree. It's the same in the stock market, which in aggregate acts like a giant bond with dividends being the yield. Selling triggers selling until its exhausted for the move.

Bond prices fall, increasing their yield...

[Guest_northshore_*]

unbelievably, this being a property site, many don't have a clue about bonds. Many here don't even know a mortgage is a bond, they don't seem to know about the relationship between yield, premium and duration.

QE is vacuuming up bonds at a rate that is making the supply of bonds dry up

http://www.bloomberg.com/news/articles/2015-08-18/ecb-s-market-dilemma-is-what-happens-when-bond-supply-dries-up-

Mortgages aren't coupon bonds. The sensitivity of prices to yields (duration) and sensitivity of duration to yields (convexity) differs. Where there's optionality (prepayment/extension risk) there can be negative convexity, which affects duration. i.e. With falling rates borrowers are incentivised to refinance or prepay, and vice-versa.

Probably another reason rates aren't likely to go up much if at all, but note that central banks have been buying mortgage backed securities anyway.

Quite a good shortish explanation: http://libertystreeteconomics.newyorkfed.org/2014/03/convexity-event-risks-in-a-rising-interest-rate-environment.html

[evetsm]

Bond prices fall, increasing their yield...

yes, but the initial event is the central bank SAYING rates will rise. That sends a signal to bond investors that the price of bonds will fall, so bond holders sell the bonds triggering a cascade of new bond supply onto the market which the central bank can buy. ie bond supply has increased merely by the mention by the central bank of rate rises. The central bank has shaken the bond tree to release new supply

[DTMark]

I haven't read the entire thread, but my theory back in circa 2010 was that what we would see waves of financial crises one after another getting closer and closer together each time temporarily 'fixed' by some Central Bank intervention, until one or more currencies completely collapse.

Given that nothing has been done to address the root causes of the problems, and everything that has been done creates the conditions for the next crisis, I still think this is likely.

[evetsm]

Mortgages aren't coupon bonds. The sensitivity of prices to yields (duration) and sensitivity of duration to yields (convexity) differs. Where there's optionality (prepayment/extension risk) there can be negative convexity, which affects duration. i.e. With falling rates borrowers are incentivised to refinance or prepay, and vice-versa.

Probably another reason rates aren't likely to go up much if at all, but note that central banks have been buying mortgage backed securities anyway.

Quite a good shortish explanation: http://libertystreeteconomics.newyorkfed.org/2014/03/convexity-event-risks-in-a-rising-interest-rate-environment.html

mortgages are coupon bonds. What are your monthly repayments then if they are not coupons ?!

the coupon is the interest rate on the bond, not the duration, and the coupons on a mortgage are the monthly repayments.

In this property bubble the market IS the bond market, because the mortgages are bonds, and almost 100% of buyers (demand) depends on the affordabilty of the mortgages. If the bonds/ mortgages become unaffordable buyers dry up and holders/owners sell. A double whammy that equates to house price crash.

[_CC_]

yes, but the initial event is the central bank SAYING rates will rise. That sends a signal to bond investors that the price of bonds will fall, so bond holders sell the bonds triggering a cascade of new bond supply onto the market which the central bank can buy. ie bond supply has increased merely by the mention by the central bank of rate rises. The central bank has shaken the bond tree to release new supply

Jebus...

No, there is no "new supply" - there is just a lot more sellers looking to unload at a lower price.

If the central bank came along, without any alert which may spook bond holders, it could buy up the same bonds - just it will be at a higher price. But this in itself is not a problem as it's one of the goals of the program; to manipulate the yield cover by buying up specific bonds.

I think you've read that bond supply issue piece and came up with a thoery in your head. The supply issue with ECB relates to the fact they only have a remit to buy specific types of bonds, so naturally the number of issues available to purchase is going to start to run dry. This is why they are saying about potentially extending the types of securities they are allowed to purchase. It's all spelt out in the article.

[_CC_]

Jebus...

No, there is no "new supply" - there is just a lot more sellers looking to unload at a lower price.

If the central bank came along, without any alert which may spook bond holders, it could buy up the same bonds - just it will be at a higher price. But this in itself is not a problem as it's one of the goals of the program; to manipulate the yield cover by buying up specific bonds.

I think you've read that bond supply issue piece and came up with a thoery in your head. The supply issue with ECB relates to the fact they only have a remit to buy specific types of bonds, so naturally the number of issues available to purchase is going to start to run dry. This is why they are saying about potentially extending the types of securities they are allowed to purchase. It's all spelt out in the article.

* yield curve (unsure how to edit posts?)

[evetsm]

Jebus...

No, there is no "new supply" - there is just a lot more sellers looking to unload at a lower price.

If the central bank came along, without any alert which may spook bond holders, it could buy up the same bonds - just it will be at a higher price. But this in itself is not a problem as it's one of the goals of the program; to manipulate the yield cover by buying up specific bonds.

I think you've read that bond supply issue piece and came up with a thoery in your head. The supply issue with ECB relates to the fact they only have a remit to buy specific types of bonds, so naturally the number of issues available to purchase is going to start to run dry. This is why they are saying about potentially extending the types of securities they are allowed to purchase. It's all spelt out in the article.

I'm going to shout now, out of sheer frustration :THERE IS NEW SUPPLY !!!!!

The central bank ran out of bonds to buy, it shook the tree and bond holders sold(put out asks) and the bonds came onto the market(supply) for the central bank to buy.

man, this is frustrating !!!

Edited September 3, 2015 by evetsm

[evetsm]

you can see why it's so easy for the bankers to rig a property bubble, most of the buyers don't seem to have a clue what they actually are buying. They think they're buying a house, instead they got a bond. But because it was called a mortgage they were none the wiser.

Edited September 3, 2015 by evetsm

[_CC_]

I'm going to shout now, out of sheer frustration :THERE IS NEW SUPPLY !!!!!

The central bank ran out of bonds to buy, it shook the tree and bond holders sold(put out asks) and the bonds came onto the market(supply) for the central bank to buy.

man, this is frustrating !!!

You're simply a moron lol

You're confusing two different issues.

There is a market for bonds. If you spook the market and they sell it doesn't provide a greater supply for a central bank to buy - they could have bought all of those same bonds, before the market was spooked, at a higher price.

You're confusing the above with what's in the Bloomberg piece, and that relates to there being a low amount of some issues available for them to buy. Nothing you can do to spook people to sell these, they are not many issues in the market in the first place.

I can't make it much simpler than that, hopefully you now understand.

[evetsm]

You're simply a moron lol

You're confusing two different issues.

There is a market for bonds. If you spook the market and they sell it doesn't provide a greater supply for a central bank to buy - they could have bought all of those same bonds, before the market was spooked, at a higher price.

You're confusing the above with what's in the Bloomberg piece, and that relates to there being a low amount of some issues available for them to buy. Nothing you can do to spook people to sell these, they are not many issues in the market in the first place.

I can't make it much simpler than that, hopefully you now understand.

kindergarten time. there is you and me in a market, I hold a bond you want to buy a bond. I'm not selling, you have nothing to buy. there is no supply. you say you'll raise rates, I think I'm going to lose money I had better sell my bond while I can. You are now supplied with a bond to buy. ie there is new supply

even you can understand that, but o won't hold my breath.

[Guest_northshore_*]

mortgages are coupon bonds. What are your monthly repayments then if they are not coupons ?!

the coupon is the interest rate on the bond, not the duration, and the coupons on a mortgage are the monthly repayments.

In this property bubble the market IS the bond market, because the mortgages are bonds, and almost 100% of buyers (demand) depends on the affordabilty of the mortgages. If the bonds/ mortgages become unaffordable buyers dry up and holders/owners sell. A double whammy that equates to house price crash.

A conventional non-callable gilt is a standard coupon bond. A mortgage is not because it has embedded optionality. I was pointing out that the relationships are not the same, so choices and practice are not the same. Why has there been no real 'bond vigilante-ism' this time around? Because nobody likes losing money to make a losing point against a tide of contrary information and flow.

You seem to be taking an end point and finding a reason it would happen via 'the bond market'. That's not logical when rates are a reflection of wider economic balance. Or when for example the BoE could just hint at or start up QE again if they chose.

[evetsm]

why has there been no bond vigilantes?

because the central banks this time around crushed them with QE. The central banks shouted from the hilltops saying " we can print unlimited amounts of money to buy as many bonds as we can get our hands on"

and you tell me would you be dumb enough and short bonds under those conditions? no sane vigilante would dare, and the insane ones got crushed long ago.

[evetsm]

"That's not logical when rates are a reflection of wider economic balance."

yes, and they are all baked into the bond prices. The bond market is the rate market. There is not one market over there and another one over here for rates. They are all one market, the bond market.

[_CC_]

kindergarten time. there is you and me in a market, I hold a bond you want to buy a bond. I'm not selling, you have nothing to buy. there is no supply. you say you'll raise rates, I think I'm going to lose money I had better sell my bond while I can. You are now supplied with a bond to buy. ie there is new supply

even you can understand that, but o won't hold my breath.

No, you may not be willing to sell at the current market price.

If you weren't willing to sell at all you wouldn't be in the market as you have nothing to sell.

What a plonker.

[evetsm]

No, you may not be willing to sell at the current market price.

If you weren't willing to sell at all you wouldn't be in the market as you have nothing to sell.

What a plonker.

"current market price"

he learned a new phrase. pity he used it out of context. typical for clueless.

IN THE CONTEXT OF NEW SUPPLY , IT MATTERS NOT WHAT MOTIVATED THE BOND HOLDER TO SELL, THE FACT THAT HE CHOSE TO SELL MEANS HE PUT NEW SUPPLY OF BONDS ONTO TJE MARKET.!!!!;

It so happens that yes, the fact that the central bank said they would raise rates prompted him to sell.

[Guest_northshore_*]

why has there been no bond vigilantes?

because the central banks this time around crushed them with QE. The central banks shouted from the hilltops saying " we can print unlimited amounts of money to buy as many bonds as we can get our hands on"

and you tell me would you be dumb enough and short bonds under those conditions? no sane vigilante would dare, and the insane ones got crushed long ago.

Then where does your point about higher rates equating to a hpc come from?

Let's go with your property-is-the-market idea, which is true in many ways. The broad exposure and convexity profile of mortgages make rate increases less likely, not more.

If rates went up that would be due to a stronger economy, not weaker. Otherwise they'd soon be lower again.

Edited September 3, 2015 by northshore

[evetsm]

"Then where does your point about higher rates equating to a hpc come from?"

because if you think markets can go up forever (30+ years in the sovereign bond market and counting) or go down forever, then I have a bridge to sell you. The same one I just sold to-CC- lol !

That it's 100% certain that the markets will eventually overpower the central banks is not debatable IMO

But it's the timing of that event( or mistiming) that has killed the bond vigilantes. So, until it happens, it doesn't happen and all mistimed bets get crushed.

[Guest_northshore_*]

"Then where does your point about higher rates equating to a hpc come from?"

because if you think markets can go up forever (30+ years in the sovereign bond market and counting) or go down forever, then I have a bridge to sell you. The same one I just sold to-CC- lol !

That it's 100% certain that the markets will eventually overpower the central banks is not debatable IMO

But it's the timing of that event( or mistiming) that has killed the bond vigilantes. So, until it happens, it doesn't happen and all mistimed bets get crushed.

What if we are experiencing the markets overpowering central banks by keeping inflation and rates low or negative?

Or what if people have misunderstood bond-vigilante to mean getting rates higher, when it actually just means just making as much money as possible gaming the system wherever rates are?

I didn't say anything about forever or what I want. As it goes I think land/property market trends determine rates more than vice versa.

[evetsm]

What if we are experiencing the markets overpowering central banks by keeping inflation and rates low or negative?

Or what if people have misunderstood bond-vigilante to mean getting rates higher, when it actually just means just making as much money as possible gaming the system wherever rates are?

I didn't say anything about forever or what I want. As it goes I think land/property market trends determine rates more than vice versa.

because I don't believe that this is normal or sustainable.

http://blog.milesfranklin.com/wp-content/upLoads/2014/09/FRED-Chart-BH.png