The Trigger Has Been Pulled And The Slaughter Of The Bonds Has Begun

What does it look like when a 30 year bull market ends abruptly?  What happens when bond yields start doing things that they haven’t done in 50 years?
If your answer to those questions involves the word “slaughter”, you are probably on the right track.
Right now, bonds are being absolutely slaughtered, and this is only just the beginning. 


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$.99 Over Spot At SDBullion!


From The Economic Collapse Blog:

Over the last several years, reckless bond buying by the Federal Reserve has forced yields down to absolutely ridiculous levels.  For example, it simply is not rational to lend the U.S. government money at less than 3 percent when the real rate of inflation is somewhere up around 8 to 10 percent.  But when he originally announced the quantitative easing program, Federal Reserve Chairman Ben Bernanke said that he intended to force interest rates to go down, and lots of bond investors made a lot of money riding the bubble that Bernanke created.  But now that Bernanke has indicated that the bond buying will be coming to an end, investors are going into panic mode and the bond bubble is starting to burst.  One hedge fund executive told CNBC that the “feeling you are getting out there is that people are selling first and asking questions later”.  And the yield on 10 year U.S. Treasuries just keeps going up.  Today it closed at 2.59 percent, and many believe that it is going to go much higher unless the Fed intervenes.  If the Fed does not intervene and allows the bubble that it has created to burst, we are going to see unprecedented carnage.

Markets tend to fall faster than they rise.  And now that Bernanke has triggered a sell-off in bonds, things are moving much faster than just about anyone anticipated

Wall Street never thought it would be this bad.

Over the last two months, and particularly over the last two weeks, investors have been exiting their bond investments with unexpected ferocity, moves that continued through Monday.

A bond sell-off has been anticipated for years, given the long run of popularity that corporate and government bonds have enjoyed. But most strategists expected that investors would slowly transfer out of bonds, allowing interest rates to slowly drift up.

Instead, since the Federal Reserve chairman, Ben S. Bernanke, recently suggested that the strength of the economic recovery might allow the Fed to slow down its bond-buying program, waves of selling have convulsed the markets.

In particular, junk bonds are getting absolutely hammered.  Money is flowing out of high risk corporate debt at an astounding pace

The SPDR Barclays High Yield Bond exchange-traded fund has declined 5 percent over the past month, though it rose in Tuesday trading. The fund has seen $2.7 billion in outflows year to date, according to IndexUniverse.

Another popular junk ETF, the iShares iBoxx $ High Yield Corporate Bond, has seen nearly $2 billion in outflows this year and is off 3.4 percent over the past five days alone.

Investors pulled $333 million from high-yield funds last week, according to Lipper.

While correlating to the general trend in fixed income, the slowdown in the junk bond business bodes especially troubling signs for investment banks, which have relied on the debt markets for fully one-third of their business this year, the highest percentage in 10 years.

The chart posted below comes from the Federal Reserve, and it “represents the effective yield of the BofA Merrill Lynch US High Yield Master II Index, which tracks the performance of US dollar denominated below investment grade rated corporate debt publically issued in the US domestic market.”  In other words, it is a measure of the yield on junk bonds.  As you can see, the yield on junk bonds sank to ridiculous lows in May, but since then it has been absolutely skyrocketing…

Junk Bonds

So why should the average American care about this?

Well, if the era of “cheap money” is over and businesses have to pay more to borrow, that is going to cause economic activity to slow down.

There won’t be as many jobs, part-time workers will get less hours, and raises will become more infrequent.

Those are just some of the reasons why you should care about this stuff.

Municipal bonds are being absolutely crushed right now too.  You see, when yields on U.S. government debt rise, they also rise on state and local government debt.

In fact, things have been so bad that hundreds of millions of dollars of municipal bond sales have been postponed in recent days…

With yields on the U.S. municipal bond market rising, local issuers on Monday postponed another six bond sales, totaling $331 million, that were originally scheduled to price later this week.

Since mid-June, on the prospect that the Federal Reserve could change course on its easy monetary policy as the economy improves, the municipal bond market has seen a total of $2.6 billion in sales either canceled or delayed.

If borrowing costs for state and local governments rise, they won’t be able to spend as much money, they won’t be able to hire as many workers, they will need to find more revenue (tax increases), and more of them will go bankrupt.

And what we are witnessing right now is just the beginning.  Things are going to get MUCH worse.  The following is what Robert Wenzel recently had to say about the municipal bond market…

Thus, there is only one direction for rates: UP, with muni bonds leading the decline, given that the financial structures of many municipalities are teetering. There is absolutely no good reason to be in municipal bonds now. And muni ETFs will be a worse place to be, given this is relatively HOT money that will try to get out of the exit door all at once.

But, as I wrote about yesterday, the worst part of the slaughter is going to be when the 441 trillion dollar interest rate derivatives time bomb starts exploding.  If bond yields continue to soar, eventually it will take down some very large financial institutions.  The following is from a recent article by Bill Holter

Please understand how many of these interest rate derivatives work.  When the rates go against you, “margin” must be posted.  By “margin” I mean collateral.  Collateral must be shifted from the losing institution to the one on the winning side.  When the loser “runs out” of collateral…that is when you get a situation similar to MF Global or Lehman Bros., they are forced to shut down and the vultures then come in and pick the bones clean…normally.  Now it is no longer “normal,” now a Lehman Bros will take the whole tent down.

Most people have no idea how vulnerable our financial system is.  It is a house of cards of risk, debt and leverage.  Wall Street has become the largest casino in the history of the planet, and the wheels could come off literally at any time.

And it certainly does not help that a whole host of cyclical trends appear to be working against us.  Posted below is an extended excerpt from a recent article by Taki Tsaklanos and GE Christenson


Charles Nenner Research (source)

Stocks should peak in mid-2013 and fall until about 2020.  Similarly, bonds should peak in the summer of 2013 and fall thereafter for 20 years.  He bases his conclusions entirely on cycle research.  He expects the Dow to fall to around 5,000 by 2018 – 2020.

Kress Cycles by Clif Droke (source)

The major 120 year cycle plus all minor cycles trend down into late 2014.  The stock market should decline hard into late 2014.

Elliott Wave Cycles by Robert Prechter (source)

He believes that the stock market has peaked and has entered a generational bear-market.  He anticipates a crash low in the market around 2016 – 2017.

Market Energy Wave (source)

He sees a 36 year cycle in stock markets that is peaking in mid-2013 and down 2013 – 2016.  “… the controlling energy wave is scheduled to flip back to negative on July 19 of this year.”  Equity markets should drop 25 – 50%.

Armstrong Economics (source)

His economic confidence model projects a peak in confidence in August 2013, a bottom in September 2014, and another peak in October 2015.  The decline into January 2020 should be severe.  He expects a world-wide crash and contraction in economies from 2015 – 2020.

Cycles per Charles Hugh Smith (source)

He discusses four long-term cycles that bottom roughly in the 2010 – 2020 period.  They are:  Credit expansion/contraction cycle;  Price inflation/wage cycle; Generational cycle;  and Peak oil extraction cycle.

Harry Dent – Demographics (source)

Stock prices should drop, on average for the balance of this decade.  Demographic cycles in the United States (and elsewhere) indicate a contraction in real terms for most of this decade.


I was stunned when I originally read through that list.

Is it just a coincidence that so many researchers have come to such a similar conclusion?

The central banks of the world could attempt to “kick the can down the road” by buying up lots and lots of bonds, but it does not appear that is going to happen.

The Federal Reserve may not listen to the American people, but there is one institution that the Fed listens to very carefully – the Bank for International Settlements.  It is the central bank of central banks, and today 58 global central banks belong to the BIS.  Every two months, the central bankers of the world (including Bernanke) gather in Basel, Switzerland for a “Global Economy Meeting”.  At those meetings, decisions are made which affect every man, woman and child on the planet.

And the BIS has just come out with its annual report.  In that annual report, the BIS says that central banks “cannot do more without compounding the risks they have already created”, and that central banks should “encourage needed adjustments” in the financial markets.  In other words, the BIS is saying that it is time to end the bond buying

The Basel-based BIS – known as the central bank of central banks – said in its annual report that using current monetary policy employed in the euro zone, the U.K., Japan and the U.S. will not bring about much-needed labor and product market reforms and is a recipe for failure.

“Central banks cannot do more without compounding the risks they have already created,” it said in its latest annual report released on Sunday. “[They must] encourage needed adjustments rather than retard them with near-zero interest rates and purchases of ever-larger quantities of government securities.”

So expect central banks to start scaling back their intervention in the marketplace.

Yes, this is probably going to cause interest rates to rise dramatically and cause all sorts of chaos as the bubble that they created implodes.

It could even potentially cause a worse financial crisis than we saw back in 2008.

If that happens, the central banks of the world can swoop in and try to save us with their bond buying once again.

Isn’t our system wonderful?



  1. IF they were smart they’d have been pouring their worthless fiat dollars into precious metals as a store of value like me.
    LOL. just shoot me.

    • Central banks HAVE been doing just that.  The numbers for the past few years has been in the area of 400-500 metric tons per year.  Yes, they could do more than this and probably should be but that is better than being net sellers of gold, which they have been prior to this recent buying spree.

    • LOL!  CD, I like your replies to these articles!  Spot on.
      Yeah, sounds to me like they’re “Gonna kill the dollar”… Hummm where have I heard this before?  And if the time is now, I sure hope they have a bunch of new paper currency ready to go, soon, to replace the old one… Hummmm Oct 8th rings a little bell in my cranium for some reason.  Yup, I guess now the logical place to park that black and green paper is at the local coin shop. for the nice shiney silver stuff.
      Looks like the Fat Lady is about ready to walk out on stage, but first a message from our sponsor…
      Back in two, and two.  Like `ol Chuck Woolery used to say…

  2. When it happens it will happen, so calm down with the hype!

  3. Yeah, I can see those interest rates climbing and climbing.

  4. Here it comes.  Paper gold and silver being smashed, bond rates rising..
    Look at old, crazy Nostradamus, Century 8, Quatrain 28:

    “The copies of gold & silver inflated,
    which after the theft were thrown into the lake
    at the discovery that all is exhausted & dissipated by debt.
    All scrips and bonds will be wiped out”.

    When it becomes common knowledge that there is no gold, those futures contracts reach their intrinsic value, which is zero.
    I have always worried that the stackers would panic along with the proles, making things worse.
    I’ll join in-
    Sell Sell Sell!

    • I for one will not panic and sell. If your a knee jerk day trader playing with the food and rent money, by all means sell.
      US currency 1930`s and earlier, gold coins still exsist, proof that not everyone paniced and sold, even under the order of the law.

    • There is some pretty good evidence that says many Americans refused to turn in their gold.  Most of them probably buried it somewhere and only pulled out a few coins at a time.  They could keep up to $100 worth legally, so having that amount or less in their pockets at any given time plus a safe hidey-hole for the rest worked well.  Not that anyone went around checking individuals for gold in their pockets but this was probably one of the things that were tacked on if someone was arrested for other crimes.

    • He’s saying the PAPER silver was thrown into the lake, NOT the real silver.
      If you’re going to go on prophesy, only use the Book of Revelation.  It’s the only prophesy that’s guaranteed 100% correct.

  5. There are two things that can be deduced from this post. 
    Investors, by and large, will react badly. 
    Governments will make the situation worse.

    • The former of those is a learned behavior that stems from government interference in the markets while the latter is virtually engraved in marble somewhere.

    • As SHTF in slow motion (but speeding up), and yes governments will make it much worse, they have already made it terrible

  6. The ‘QEfinity’ crowd has it more correct than even they know. Because it’s systemic, currency inflation happens automatically and the ONLY HOPE of EVER ‘regulating’ it from its inception has been through the control of current interest rates. So, since that’s got away from them, they’re ‘between a rock and hard place’, They CAN’T simply let interest rates go up, hyper-inflation would be the immediate consequence. Nor, can they keep rates down because it’s killing everything dependent on sufficient interest income to survive (pensions and insurance, chief among that sector). The ‘Catch-22′, is that BOTH choices worsen the increasingly encompassing Debt Saturation clamping its Tyrannosaur jaws around the throat of commerce.

    The sole ‘escape hatch’ is the re-set conversion back to the commodity monetary scheme (metals, ideally), persistent rumors of which have been floating out of Basel for almost a year now. It’s the ONLY logical choice to avert pandemic calamity (some would WANT that, while most don’t), but, bankers being bankers, this will be a ‘gold-backed ‘ paper instrument, so gold can be HUGELY over-valued while kept in their stinking vaults.

    Rationalization means that we silver stackers will see sorely tempting ‘rewards’ for our intransigent patience and foresight, but NOWHERE NEAR the proper natural ratios that an historic poly-metalic monetary scheme would otherwise command to us. Despite welcome respite, our long struggle may have to be taught to our kids before full vindication comes to our cause.

    Paper Rots, Coin Does Not.

    • “The ‘Catch-22′, is that BOTH choices worsen the increasingly encompassing Debt Saturation clamping its Tyrannosaur jaws around the throat of commerce.”
      Which is precisely why wise men and women do not go down this road.  It always ends badly, no matter how smart they believe themselves to be.  No one is smarter than the free market.  Few are even smarter than a manipulated market, where unintended consequences thrive.  Payback really is a bi+ch… and we are seeing the beginning of it in the bond market right now.

  7. Where are all of those “stack the smack” posts? Enthusiasm is surely waning around here. 

    • As Rick Rule stated – Always have some cash available …. I will get a little silver, maybe 20 oz, today. All my extra cash can afford. 

    • Well here’s one. @gogetter1132 I’m at work making Fiat to stack some more. I just bought another 40 oz’s today at SilverTowne $876.00 shipped and the other 40oz’s I bought last week just arrived this afternoon. When it’s down, Buy. Buy, Buy The Dip. And if it’s down this week-end I’ll Buy, Buy, Buy again. Keep Stacking

    • Well, there’s BUYING and then there’s talking about buying.  Most of us are always buying some silver or gold.  Maybe we just don’t talk about it as much as we once did.  ;-)

    • Marchas45-You seem to be buying at these price levels.  Are you predicting a bottom for the metals?  I keep you at high regards.  I will respect your opinion compared to Sinclairs to calling for a bottom.  Keep stacking!

  8. There is only one solution to the cycle of debt and despair that has been foisted upon us and the rest of the world. Take out the BIS and ALL central banks. There is no other alternative. You either excise the cancer or you die from it. You’re going to die anyway so what do you have to loose? At least future generations don’t have to suffer under this pseudo-capitalist cabal’s game.

    • It isn’t the banks per se, it’s the banknote scheme. The scheme is the REASON for ‘central banking’ … to control interest rates. Originally, to suppress the scheme’s automatically generated currency inflation within economic growth parameters. It was a doomed ‘plan’ but they committed themselves to it and now have to pull their butts from the blaze they set off.

    • As was said in one of the Bruce Willis movies… “Nah.  Let’em cook.”.  LOL

  9. “And the yield on 10 year U.S. Treasuries just keeps going up.  Today it closed at 2.59 percent, and many believe that it is going to go much higher unless the Fed intervenes.  If the Fed does not intervene and allows the bubble that it has created to burst, we are going to see unprecedented carnage.”
    As usual, the Fed will try to find a way to let some of the excess air out of this bubble gradually.  Unfortunately, their record of success at doing this is not especially good.
    “Well, if the era of “cheap money” is over and businesses have to pay more to borrow, that is going to cause economic activity to slow down.”
    While that is possible, it is frequently over-looked that while falling interest rates usually spur business activities, there IS a diminishing returns aspect to it.  Once rates fall below about 2.5-3%, the effect that it has on business virtually disappears.  Also, there have been MANY years in US financial history where interest rates were at 4-5% when business and the economy were booming.  Interest rates play their part in all this but there is a lot more to it than just the cost of borrowing money.  The downside of excessive borrowing due to low interest rates is that capital allocation is often more poorly done than when rates are higher and mistakes more costly.
    “If borrowing costs for state and local governments rise, they won’t be able to spend as much money”
    States and cities often spend more money than they have and very low rates only encourage this bad financial behavior.  Considering how many state and local governments are in deep economic trouble now for this very reason maybe it is time to back away from this BEFORE we have a surge in the number of Detroit and California style financial problems out there.
    “Every two months, the central bankers of the world (including Bernanke) gather in Basel, Switzerland for a “Global Economy Meeting”.  At those meetings, decisions are made which affect every man, woman and child on the planet.”
    Primarily, this affects those who live on credit.  Those who cannot get credit don’t care about this as it doesn’t have much effect on them.
    “Yes, this is probably going to cause interest rates to rise dramatically and cause all sorts of chaos as the bubble that they created implodes.  It could even potentially cause a worse financial crisis than we saw back in 2008.”
    Indeed so… IF the bubble implodes, rather than being bled down (not likely, but possible).  The derivatives ARE the biggest part of this and there is a HUGE amount of “notional value” in these.  Banksters often tell us that they are very low in “net” derivatives exposure.  This is a slick way of them pretending that all will be well because they will be paid about as much as they owe… IF they get paid, which mostly they will not when the derivatives market implodes.

    • Just keep this in mind.
      1) New World Order
      2) Population reduction

    • Remember boys and girls. This is only one trigger.  Did I hear Mortage bubble?  Student debt?  What happened to that 4 trillion dollars the federal reserve lost.?   Well a good thing is the rest of the world wants to make a rating agency like Moody’s, Standard and Poors, Fitch something?  9n RT dot com.  Septmeber boys and girls, September

  10. It’s pretty obvious the FED is intervening to keep yields down. So, I don’t think it’s armageddon yet.

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