Loading ...Saturday, September 7, 2019-Credit. Bubble BulletinWeekly
Commentary: $150 Billion Global Corporate Bond Binge
It’s difficult to envisage a more manic bond market environment – at home or abroad. In Europe, it’s tulip mania reincarnated, with a third of European investment-grade bonds now trading with negative yields. Draghi had best not disappoint the markets next Thursday.
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“JPMorgan’s analysts say September is shaping up to be the ‘first issuance window where negative yielding bonds are a common feature, rather than an occasional oddity’.
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FANNIE AND FREDDIE==It’s worth noting GSE Securities surged $626 billion since the end of 2016 – in what is reckless late-cycle growth for institutions with zero capital buffers. But as a wing of the Department of Treasury (and a probable target of the Fed’s next QE program), GSE debt and MBS have enjoyed insatiable demand. In one of history’s great Bond Binges, combined outstanding Treasury and GSE securities have increased $3.0 Trillion over just the past ten quarters.
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“As central bankers weigh up cutting interest rates deeper into negative territory, investors should consider when the risks of this trend will begin to outweigh its benefits. With almost $17tn of negative-yielding debt already out there, I fear we have already hit the reversal rate — the point at which accommodative monetary policy ‘reverses’ its intended effect and becomes contractionary for the economy. Conventional macroeconomic models typically take banks and other intermediaries for granted. As a result, the overall benefits of cutting rates below zero may have been exaggerated.”