Worse “than the 1994 ‘Bond Massacre,’” with “sustained double-digit losses on bonds, subpar growth in developed markets, and balance sheet risks for banking systems….”
By Wolf Richter, SRSRocco:
The backdrop: after 36 years of bond bull market, the amount of US bonds has ballooned to $47 trillion, up 24% from just ten years ago:
•US Treasurys ($19.8 trillion),
•Municipal bonds ($3.8 trillion)
•Mortgage related bonds ($8.9 trillion)
•Corporate bonds ($8.6 trillion)
•Federal Agency bonds ($2 trillion)
•Money Markets ($2.6 trillion)
•Asset backed Securities ($1.3 trillion)
Bonds dwarfs the US stock market capitalization ($27 trillion). Bonds are a global phenomenon with even bigger bubbles elsewhere, particularly in NIRP countries, such as those in Europe, and in Japan. That’s why bonds matter. They’re enormous. And the damage they can do to investors is huge.
So how bad might the next bond bear market get? Paul Schmelzing, a visiting scholar at the Bank of England and an academic at Harvard where he concentrates on 20th century financial history, published an unpleasant scenario on the Bank of England’s blog. He doesn’t mince words:
[A]s rates reached their lowest level ever in 2016, investors rather worried about the “biggest bond market bubble in history” coming to a violent end. The sharp sell-off in global bonds following the US election seems to confirm their fears. Looking back over eight centuries of data, I find that the 2016 bull market was indeed one of the largest ever recorded. History suggests this reversal will be driven by inflation fundamentals, and leave investors worse off than the 1994 “bond massacre.”
To arrive at his conclusion, he classifies bond bear markets into three types:
READ MORE HERE: How Bad Will The “Bond Massacre” Get?
NEXT WEEK: I will be putting out an article on the critical factor why the U.S. Dollar-Gold Peg was dropped in 1971. While there has been a great deal of analysis and speculation why President Nixon discontinued the convertibility of U.S. Dollars for gold, this article provides the real data and information according to my analysis.
Also, I will be posting an article on PEAK SOLAR in California and what this means for the United States going forward.
If you have not yet listened to my interview at Future Money Trends on the ENERGY INDUSTRY IN CRISIS, I highly recommend you do below: