Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
South Korea Coronavirus Outbreak Data Analysis Warning Rate of Infection is Exponential! - 26th Feb 20
Gold Price Long-term Trend Analysis Forecast 2020 - 26th Feb 20
Fake Markets Are on Collision Course with Reality - 26th Feb 20
Microsoft is Crushing the S&P 500, Secret Trait Of Stocks That Soar 1,000%+ - 26th Feb 20
Europe's Best Ski Resorts For The Ultimate Adventure - 26th Feb 20
Samsung Galaxy S20+ vs Galaxy S10+ Which One to Buy? - 26th Feb 20
Gold Is Taking on $1,700 amid Rising Coronavirus Fears - 26th Feb 20
Is This What Falling Through the Floor Looks Like in Stocks? - 26th Feb 20
Gold Minsky Moment Coming - 26th Feb 20
Why Every Student Should Study Economics - 26th Feb 20
Stock Market Correction Over? - 26th Feb 20
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Greece Armageddon, Financial Ebola Sweeps Through Global Bond Markets

Interest-Rates / Global Debt Crisis Apr 30, 2010 - 08:37 AM GMT

By: Mike_Larson

Interest-Rates

Best Financial Markets Analysis ArticleWhat does the end of the bond market world look like? Something like this …


Bond Market Armagenddon Strikes Greece

The chart above shows the yield on the benchmark 2-year note in Greece. Just a few short months ago, Greek sovereign yields were hovering around 2.1 percent. On Wednesday, they shot up as high as 18.9 percent!

Translation? The cost of borrowing for the Greek government — not some subprime mortgage customer or deadbeat credit card holder — shot up almost NINE-FOLD in the span of six months.

During this same time, the price of Greece’s 6 percent 10-year notes due July 19, 2019 plunged from 112.4 to 68.1. That’s a loss of more than 39 percent. Not on some dot-bomb stock … not even on a high-yield, or “junk” piece of paper …

… but on a sovereign government bond!

Folks, THAT is bond market Armageddon. And it’s playing out now. Right on the trading screen of every investor around the world.

Think Greece Is Alone?

Think Again!

Worse, the pain isn’t confined to Greece …

Portugal’s benchmark 2-year note yield just blew out to 4.82 percent from 1.58 percent. That’s a tripling in interest rates in less than a month.

Ireland? Its 2-year yield rocketed to 3.83 percent from 1.62 percent in 23 days.

Even bigger European economies, like Spain, are getting whacked. Yields there recently shot up to 2.08 percent from 1.36 percent.

S&P has cut the debt ratings of several EU members.
S&P has cut the debt ratings of several EU members.

Standard & Poor’s has taken the hatchet to its sovereign debt ratings in response. The agency cut its Spanish debt rating to AA just a day after slashing its Portuguese debt rating by two notches to A-. It also cut its Greek debt rating by three notches to BB+, “junk” territory.

Bottom line: A virulent sovereign debt contagion is spreading like wildfire throughout the euro zone. In the short run, that will likely get the Germans to back down on their bailout opposition.

They’ve been holding up a package that would give Greece up to $60 billion in aid from richer European Union nations and the International Monetary Fund. The crisis may temporarily take a breather if the package gets approved.

But here’s the thing: If the Greeks get bailed out, who’s next? And where the heck is all the bailout money going to come from? Policymakers may need to cough up almost $800 billion to “save” everyone, according to economists at firms such as Goldman Sachs and JPMorgan Chase.

The problem is that nobody has that kind of money laying around! So it’ll have to be borrowed. And if it has to be borrowed … from a European bond market that’s already falling apart at the seams … what’s likely to happen? Even more selling, which would drive bond prices down and interest rates up!

Coming Soon to a Bond Market Near You: Financial “Ebola!”

So far, this is predominately a problem for continental Europe. Our Treasury prices actually rose a bit during the worst of the European debt selling.

But I believe it is woefully ignorant, provincial, and arrogant for us to assume something similar can’t or won’t happen here.

The way politicians are burning through our money, interest rates are sure to skyrocket.
The way politicians are burning through our money, interest rates are sure to skyrocket.

Even the Secretary General of the Organization for Economic Cooperation and Development likened the crisis to the “Ebola” virus, saying “it’s threatening the stability of the financial system.”

When you think it through logically, you can’t help but ask: Why wouldn’t the Grim Reaper eventually come knocking at OUR door?

After all, OUR deficits are out of control! OUR debt level is through the roof! OUR politicians are burying their heads in the sand, just assuming they’ll be able to keep funding their profligacy at rock-bottom rates forever. Those are precisely the same problems that built up in Greece for months on end.

Then one day, the lid blew!

Think about it:

  • Our total debt load is set to double to $18.6 trillion over the next decade,
  • Weekly benchmark Treasury auctions have surged from $20 billion to $30 billion to more than $120 billion,
  • And we’re dumping more than $375,000 in debt onto the market every second in some weeks, all in an effort to fund a budget deficit that’s closing in on $1.6 trillion!

Do I expect a nine-fold rise in U.S. 2-year note yields? A 40 percent plunge in bond prices in just a couple of months? Not really.

But I do believe the bond market will force us to take our fiscal medicine. I do believe a sovereign debt crisis is brewing here. And I do believe it will be just one reason our interest rates will head significantly higher.

So please, invest and prepare accordingly. By the time the bond market bleeding starts, it’ll be too late.

Until next time,

Mike Larson

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules