Fake Bids, Fake Bonds, Fake Boom

Gary Kaltbaum hit the nail on the head this AM. We are now talking about incendiary greed. The blow off stage of a blind mania in the bond markets.

After last night’s panic bond-buying, there is now $15 trillion of negative yielding bonds on the world market including the 10-year German bond at negative 0.60%. That means for the privilege of loaning $100 to Angela Merkel & Co., you get $94 back ten years later. And you get to eat the interim inflation, too!

Even the 10-year UST touched a low of 1.59% this AM and that’s below any so-called “muted” inflation rate you care to pick off the Bloomberg terminal. But we’ll stick with the year/year core CPI, which was up 2.14% in June or even the run-rate during Q2 of the Fed’s beloved core PCE deflator, which was up 2.3% at an annualized rate.

So after inflation and taxes, everywhere in the world bond-buyers are getting creamed on current yield like no other time in history. None. Not in the last 6000 years.

So why have the bond fund managers of the world become a pack of lemmings?

As Gary says, it’s price, price, price.

The fools who are supposed to be investing for safety and yield are chasing the ever rising premium prices of fixed income securities which always and everywhere by their very own terms will revert back to par on maturity.

So this is either a break-out of suicidal impulses in the bond pits or it’s the ultimate case of the Greater Fool theory. Yet when the time comes to unload these trillions of massively over-priced and way-above-par bonds, whence cometh the bid?



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