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Bill Gross Says Bunds "Short Of A Lifetime", As Mario Draghi Is About To Run Out Of Bunds To Buy
By now everyone has seen the infamous chart showing how much of Europe's government bond market is trading in negative territory.
This is simply a visual representation of three stunning facts:
- As of this moment 53% of all global government bonds yielding 1% or less.
- $5.3 trillion of all global government bonds currently have negative yields, of which 60% are European.
- and Central bank assets now exceed $22 trillion, a figure equivalent to the combined GDP of US & Japan.
Considering that central banks aren't going anywhere in their frenzied scramble to re-export deflation to their peers, which means trillions more in debt monetizations (until they all lose patience, or credibility, whichever comes first and start paradropping money from Bernanke's chopper) the statistics above are only going to get worse.
It is in this context that moments ago, Bill Gross said that "German 10 year Bunds are the short of a lifetime...
Gross: German 10yr Bunds = The short of a lifetime. Better than the pound in 1993. Only question is Timing / ECB QE
— Janus Capital (@JanusCapital) April 21, 2015
... however with the provision that there is one open question: timing and ECB QE (also, we can only guess that Gross means 1992 not 1993 for the pound move).
Of course, that is the $5.3 trillion question.
In the meantime, here are some observations on timing and ECB QE.
As we noted over a month ago on March 6, what will first happen before Bunds are indeed "a short of a lifetime" is that they will first all hit -0.20%. They are already well on their way.
The reason? The same one we have been pounding the table on for over three years - Europe simply does not have enough unencumbered collateral for the ECB monetize, and certainly not enough to allow the ECB to continue its QE until late 2016.
And little by little everyone is figuring this out.
Today, it's Reuters' turn which write that "Debt redemptions and coupon repayments are expected to be about 30 billion euros more than the value of debt sales."
Reuters continues:
This means the ECB and national central banks (NCBs) may struggle to buy some of the bonds needed to keep the maturity of the banks' purchases in line with the average maturity of each country's eligible debt. The markets with the biggest net inflows this month are Spain, Germany and the Netherlands.
"This month's low net supply figure is not helpful to the ECB/NCB aim to minimise market distortions when carrying out QE, as there could be competing flows with investors wanting to reinvest in European government bonds," said Orlando Green, rate strategist at Credit Agricole.
What this means is that far from being the short of a lifetime right now, Bunds are in fact quite the opposite, and their progression to the hard -0.20% floor across the curve is just a matter of time before everyone decides to frontrun the ECB's purchases over the next year. Because if the ECB will have no choice but to buy even more Bunds from the private market, then the sellers can demand any prices for these Bunds, up to and including the ECB's hard (for now) floor of -0.20%!
Indeed, confirming that the ECB has a scarcity problem is the ECB's stern denial of just that: "ECB President Mario Draghi said last week he saw no "scarcity" problem in bond markets."
Let's revisit when the 10Yr Bund is trading at -0.20%, shall we?
Meanwhile, the only question is when the benchmark Bund finally crosses the historic 0.00% threshold. There is a brief reprieve in the coming two months...
The redemption flow in euro zone bond markets may exacerbate some of these problems in April but these difficulties may ease in the next two months. Debt sales in Italy and France in particular will outweigh debt repayments in May, Credit Agricole data shows.
... After which things get very ugly, fast:
It will be a bumpy road though -- a net 69 billion comes back to the market in July. So far under its programme, which began on March 9, the ECB has bought 73.3 billion euros of public sector bonds.
If ECB purchases are not market-neutral, investors may take the opportunity to speculate on what the central bank will buy in any given month, on the view that it will have to revert to neutrality by the end of the programme in September 2016.
Visually, the above looks as follows:
Of course, if Greece has anything to do with it, this ECB's "market neutrality" will be compromised much faster: should the Greek capital controls and bank run be exacerbated in the coming days, primarily as a result of the ECB's own ongoing attempt to spark a banking sector panic in Greece, then the 10 Year Bund may slide under 0.00% in the coming days, on its way to -0.20%.
And yes, once the entire German curve is trading at -0.20% then Bill Gross will be spot on, and Bunds will indeed be the short of a lifetime.
Just don't expect to pocket the proceeds any time soon because, paradoxically, for that to happen, central banks have to finally lose all credibility. And the fiat in which one will enjoy the profits from the Bund short may suddenly not be worth all that much in a post central-bank world.
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DEPRESSION!
If the US is ever expected to catch up, we're gonna need a bigger ZIRP.
Bill Gross' bunds in short shorts. That is all.
Vehicle: Lyxor UCITS ETF Daily Double Short Bund
Seems to me to be of the same Hubris got Crozine in trouble at MF Global. The Trade of a Lifetime.
Makes no difference which CB does the buying. By buying ANY obligation, their reserves (cash) are injected into the market "cheapening" their currency. In that sense, Treasuries, Bunds, Guilts, et al are fungible commodities.
I sure as shit wouldn't be shorting any bond markets at this juncture. Way the world's going it's gonna be QE4Evah by every CB in a race to the bottom. Aka, as in the 60's in Europe, beggar they neighbor(s)
Okay, let's recap. We're going to pay people that don't need more money, to borrow money and spend it on more things they don't need? Yeah, I don't see how those funds won't be mis-allocated at all.
Yea I grabbed some bond yields long for the tapr such as TAPR SBND PST and I wish I had kept my two year one DTUS but but I jumped ship same day (got a bank warning doing that too).. Really wished I had grabbed the DTVS, five years.
I was thinking that the attempted raise in rates as we fall into a recession would fail and then we would dip negative and that would be a great time to grab some go long yield as protection against inflation and the gold diversification with the threat of gold becoming illegal in January or February ... Right after I bought gold and it was funny because we hadn't even gotten to the disaster we can't think ahead enough to protect us from and yet they are already talking illegal gold over there. U know in case w get hyper inflation. I know they can't make hyperinflation illegal for us as they erase and write off there inflation cause u know it's cool to run in the red with all this debt.....
Anyway been seeing as of last week maybe a day in the week before ??? in day the shirt end if the curve started bouncing in Japan I saw for sure the same first day ours started..... Haven't been watching Japan since but ours is still doing it the shirt inns 2's especially and 5's behind them.
Saw this last night on Bloomberg headline
http://www.bloomberg.com/news/articles/2015-04-21/bonds-indicate-inflati...
Unless the fed wants to go bankrupt it is out of reach of more serious empty bullets now stimulating if the bond increases turn the markets down. Especially with the derivative mess and the rest if the national debt.
So even though the Feds r jumping around like crickets as who knows where they will land in the topic....
Stimulus having less effect each time and expecting it to hold back a train ~ ain't gonna cut it.... But will kill the dollar and send us into a more severe depression than we might already be facing as of now ... If not just a recession or double dip redessiin.
Who knows if bonds go Japanese or hyper inflation hits but.... The bond market is beginning to say... See previous link to Bloomberg article
Fed used up most its bullets just trying to get this crummy economy going.... ain't got much now ..... And if they dare it kills dollar and bankrupts the USA
That and a pot of water will let me fertilize my garden.
There is no feasible way for the retail trader to short German bonds
Bollocks - lots and lots of ETF's, warrants, of just the bund future on eurex available. Seriously, very, very easy to access. Perhaps there are regulatory restrictions for US clients? If so, I retract my earlier comments. (Meant in a friendly way, by the way).
"Only question is timing"???? Wtf? That's always the question.
New strategy: buy any stock, then sell it and make millions!!!1!!!11!!1!!1!1 Disclaimer: only question is when to buy and when to sell.
How can they run out of bunds to buy? The EBC will simply buy bunds from themselves for higher prices.
gain = loss and it's a wash on their books.
thanks for that sage tidbit billy boyz. that just proves once again that billionaires really are that much smarter than the rest of us. /s
Markets are getting more insane every day. The CBs are getting more desperate by the day to keep the plates spinning faster.
You ain't seen nothing yet, wait until this fall when the sleeping giant of volatility picks up again.
Seems like I've heard Bil say something similar not too long ago.....Oh yeah....U.S treasuries the short of a lifetime.... Lol good one Bill.
They don't like Billy anymore and aren't giving him his "recipe" cards to read......so the Blackjack dealer needs to sit down and STFU
Funny, I distinctly remember his yapping about the beginning of a bear market in US Treasuries in mid-2007 when the yield on the US 10yr reached ~5.25%. Ouch!
What was it Taleb famously said in 2010:
Taleb Says ‘Every Human’ Should Short U.S. Treasuries.
Ha ha ha .....
Yeah yeah but that was (Feb2010) BEFORE The Bernank started up his 'Copter and rained down QE2 (Nov2010).
As for this short thing, keep in mind that if Deflation really kicks in, a Bund with a negative rate might still have a positive real return. And be safer than keeping it on an account in a Euro bank... Just sayin'
+1 particularly because banks in the eurozone seem to be "free to fail", at this moment
"only question is timing" => always poses a bit of a problem
The system is eating itself.
The Russians are hamstering gold...a lot of it!
http://www.telegraaf.nl/dft/nieuws_dft/23952793/__Russen_hamsteren_tonne...
"Only question is timing"
Oh, really? No shit, Bill. And your 'timing' hasn't been anything to write home about the last few years. How's that short on USTs going, Bill?
Good luck collecting on said "investment" advice.
I don't get why bonds would be a short at -0.20%. What makes anyone think they won't keep going to -1%? What has changed?
Because the ECB restriction on sovereign bond purchases at a 25% issue limit pushes toward -.20%?
The ECB will have to change the restriction if it wants to inject more fuel? ...Or, rejigger something else?
http://www.zerohedge.com/news/2015-03-06/next-entire-german-bund-curve-020
Exactly. The -.20% is an artificial construct of the ECB policy, and they could, tomorrow, change that to -.50, -1.0, or any lower value. I think you would be a fool to play in this game short or long.
Believe it or not, this makes sense to me. The market is telling you that they want out of the U.S. Because they have a relatively higher Default risk than Swiss or Germany. Unfortunately there's nowhere else to park it other than bonds, even if they're negative yields. Anything but the U.S. And Japan because of the default and inflation risks.
LOL. All I can say to anyone left who cannot figure out there is no bond market is double dumbass on you. It is not the bond market that is going to crash. Despite the denial and the funny paper derivative gold, oil and commodity prices, it is the currency that is going to crash. Bonds will be priced at whatever price is decided upon in that currency. They will print as much money as it takes to hand out to producers to keep to prices low, buy stocks, and buy bonds. And yes, loaning people zero percent money to run their business is a subsidy to take losses on production.
Work at Walmart! Pay us $10/hour and you can be one of our team members! 10% discount on employee purchases!
Too bad walmart does not sell bonds...
Simple solution...issue more debt
Gross is wrong. He hasnt been right since he shaved his moustache.
The article brings up a point that concerns me about shorting the market. The argument can certainly be made that the next bubble collapse could see the crash and burn of a major sovereign. If that is the case, the whole fiat system and confidence in central banks could become shaky at best.
I'm long a bunch of puts on US markets, but fear that the next collapse could be a real doozy and could see a collapse of the dollar with it. I fear that my win by being short US equities will be mitigated by being long the dollar.
I have about 5-10% of net worth in physical gold. 50-60% in arable land in LatAm with a house, barn, solar, and well (no debt). Balance in puts and cash.
Appreciate any thoughts on how to adjust for a collapse in dollar, should that happen....
Buy NFLX.
Must be a cinch to keep a good close eye on your net worth when it's parked in the Southern Hemisphere...
Buy lots of porno.
Dijsselboom sees light at the end of the Greek tunnel... http://www.telegraaf.nl/dft/nieuws_dft/23952699/__Dijsselbloem__meer_opt...
The light at the end of a "Greek Tunnel" is usually a turd.
So...if 53% of world government bonds are yielding negative... then the obvious question is how much of those governments' collateral is rehypothecated paper???
I am guessing there is so much rehypothecation there that the real value in terms of a constant (like Gold) is something on the order of 1:1800.
MArio says come n git it !
What Mario says mario does; 'cos this is a Sergio Leone movie made in Cinecitta!
What is so hard?
Just issue more bonds and that will solve the matter.
Whats to stop the ECB from going BoJ and buying ETF's and other assets that aren't sovereign debt related? The CBanksters are going to buy everything they can, including the kitcken sink, until the serfs are on their doorsteps with molotov cocktails & pitchforks.
This is how "panic" buying turns into panic selling. Then we will see what "panic" actually means...
Express elevator, coming down, meet basement floor...not gently like before. BAM!
Before you know it, Bund yield may be trading at -100% and people would still be buying it.
Check the financial health of anyone who takes the other side of that trade.
Extolled just totally took a nosedive!
I said spell check
Wow the dollar just totally took an unexpected nose dive with even the TZA turned bull with the Nasdaq in green as the Russell didn't miss that .....
And faz perked up big time on that nose dive .... So it wasn't pretty like ooo nice to get that strong dollar off our earnings back
At the beginning of the Clinton administration in the early 1990s, adviser James Carville was stunned at the power the bond market had over the government. If he came back, Carville said: I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody,,,still true????