THE BOND YIELD SPIKES: Why they happened…and what happens next

Bill Gross, trader naivety, Janet Yellen and unreliable data caused the bonds sell-off. Pimco says the worst is over. The markets remain edgy. The Slog investigates.

I spent much of yesterday postulating (a nasty habit at the best of times) about Asian sovereigns selling off bonds to create broader rate contagion and thus deflate asset bubbles. But there’s no evidence at all for it. As in, none whatsoever. I think I hugely overestimated the IQ of governments staring down the barrel of an inevitable asset crash in parts of Asia; but on reflection – having done some thinky-diggy yesterday evening – I think the IQ I mainly overestimated was that of the markets themselves. The wisdom of crowds was always, after all, meant to be ironic bordering on sarcastic. You could call it ironcastic in fact, but there’s nothing cast iron about any markets anywhere today.

The first thing I remembered was a Twittercon from the weekend about guru Bill Gross betting against German bunds. The nice thing about reaching guru stage is that you can at times fulfil your own prophecy just by making it; Warren Buffet does it regularly. The suddenness of the move was probably, I suspect, Gross (unwittingly?) directionalising a market full of folks who have no idea what they’re at most of the time.

That may seem unkind, but it is backed up by the now gathering majority view among senior traders yesterday that the spike represents the start of Return to Normal: “the eurozone is showing some green shoots, and the US may finally be turning the corner” goes the mantra. Bonds spent the later hours of yesterday wiping out most of the previous losses, but the rally seems to have been shortlived.

What I mean by people who have no idea what they’re at is those who read the obfuscation and false optimism pumped out by the ECB, George Osborne during an election campaign, and those in Washington who grasp every ounce of data by the neck and yell, “We are saved!”. The thing with engineered bond spikes and optimistic data is that they can turn into a panic – for which there is no known cure.

Talking of Yellen, I think she has had some indirect influence too. Sticking to her tapering and rate rise outlook, Auntie Janet may well have helped a little – once the spike occurred – to think “this is it…the party’s over…let’s sell bonds”. Perhaps this is why she tried to dampen things late Monday by saying she thought stocks to be “on the high side”.

That’s like saying Charles de Gaulle was slightly tall. The western world stock markets continue (thanks to QE) to ensure that prices have no correlation whatsoever with business performance: bottom lines are being stoked bigtime by lax money, and everyone knows it. Take QE out of the market growth measurements, and there is none. But we’ve been here a hundred times.

Some blamed a dry-up in liquidity, which I don’t find remotely credible. Credulity is stretched further too when BoA serves up this kind of jargobollocks:

The cumulative result of so much central bank support is that the market’s emotional gap between fear and greed has narrowed. This has ultimately given rise to more erratic price swings”.

The analogy I find myself making more and more these days is that, just as politicians live in a hermetically sealed bubble, so too do Bourses and those who trade on them professionally. So let’s try some real facts to challenge the “turning the corner” drivel…and observe some of the Sovereign Dirty Tricks in play:

* Oil prices are still, net, falling. Some of it is geopolitical manipulation, but a lot of it is low demand.

* French PMI data is dire to the negative, but this morning we see growth is “surging ahead” at 0.4% for Q1 2015. Surging? Europols are correlating this with Draghi’s QE. There cannot possibly be a correlation this early. Anyway, exports are still awful: it’s 1.5b euros in the red again.

* Germany has slowed down.

* Morgan Stanley has recently downgraded China, citing ‘deteriorating profitability’ and the conclusion it is technically overbought.

* The UK economy remains firmly and dangerously biased towards financial services. and its Q1 figures were the worst for 15 months..

* After the world’s biggest QE input, Japanese bank lending stays anchored at 2.6%.

* The European Commission is hastily pushing through laws ‘designed to preserve the value of firms in difficulty’….aka, fiddle the books so no bankruptcy occurs.

* Two weeks ago, Schäuble told us Spain was in recovery. Today we find it isn’t: it’s still in deflation. He said insolvencies were falling: they aren’t, it’s just that the Rajoy Government is ‘restructuring’ them….at which point – like LTUs in the States – they disappear from the stats.

* Portugal’s scam is to encourage out-of-court settlements….which are also not counted as bankruptcies.

Every sign pointing to obvious world slump is hastily buried beneath ten metres of reinforced concrete, and then ‘corrected’ by lies.

The world of 1984 is here….a mere 30 years late. Nobody knows who or what to believe, and far too few have common sense to fall back on. I repeat (yawn), ‘Anything could happen but nothing will change’.

Yesterday at The Slog: Rising above politics

14 thoughts on “THE BOND YIELD SPIKES: Why they happened…and what happens next

  1. Reblogged this on Ordoliberalism and commented:
    Quantitative Easing – aka printing money combined with massive manipulation of the market – is what we see. Well put on The Slog. What would the ordoliberals have made of this chaos. See also Acting Man blog.


  2. Yields are collapsing into negative territory, and a wall of capital is chasing short term paper and this is the same flight to quality we began to see before the peak of the crisis back in 2009. The big money is selling the 10 year or greater maturities of governments including Germany, and everyone is rushing into the short-term. There is not enough paper around to satisfy the demands. This is illustrating the crisis that is unfolding and there is now a collapse in liquidity.


  3. Their is no more profit to be made from the stone!limiting your losses is the only game in town!Picasso’s the only bastiat window of opportunity,every economy in history as done the same,we really learn little beyond selfish-ism,Oh what petty animals we are!


  4. And the more they print, the greater the certainty that inflation is round the corner. Expect an Osborne tax cutting budget to produce an outcome similar to the Barber and Lawson ‘booms’. The irony is that it was Cameron , standing behind Lamont on ERM exit day, and that Lamont’s policies were correct,but he got the chop and dear old Ken Clarke later got the praise. Autumn sterling crisis, as usual.

    Liked by 1 person

  5. A bit off topic but with Johns remark about 1984 turning up 30 years late, did anyone hear Teresa May being interviewed by John Humphries about the new Thought Crime bill (BBC today programme). Chilling stuff!


  6. Jw….bullshit always baffles brains…you don’t bullshit…. ergo;; few brains out there! No competition.

    Get my drift Morpheus?

    Time to confuse the Matrix,


    Your brilliant mind must step up a level.



  7. In this low or zero growth world watch big business get governments to preserve their incomes USING TAX REVENUES.

    This has not really started yet but just one or two comments in the MSM hint at such future behaviour.


  8. My prediction:-

    Now that the cia have implanted their stooge at Number 10 …. again … the process of asset stripping (rape and pillage) will continue.

    The crown will be destroyed, the city will be destroyed, Human Rights Laws will be destroyed, the welfare system will be destroyed, the NHS will be raped, pillaged and flogged off on the cheap, TTIP will be signed, TSIP will be signed, the Mutual Defence Agreement will be signed, poverty will increase, suicides will increase, the death rate amongst the poorest will increase, the media will bury the truth, refuse to even mention any of the above except to continue to demonize the victims with lies and nazi style propaganda, more unlabelled mutant food will be sneaked into our diet.

    ‘Great’ britain will become a totalitarian, quazi-nazi corporate state and its fat arsed, unthinking, uncaring, population will sit at home in front of the moron-o-scope, stuffing their faces with processed mutant food, absorbing the kind of propaganda that would have embarrased Goebbels and cheering the whole process along.

    The traitors who signed us up for all this will hop of to america to receive their 30 pieces of silver, laundered and disguised through the usual methods that have worked so well for their predecesors.

    But, of course, none of this could ever happen …..


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