Over $1 Trillion In Bond Losses In Days: Second Worst Week Ever

Tyler Durden's picture

Six months after we warned about the massive loss potential resulting from a spike in bond yields, one month after Ray Dalio did exactly the same, when he warned the NY Fed that "it would only take a 100 basis point rise in Treasury bond yields to trigger the worst price decline in bonds since the 1981 bond market crash", and one day after we documented that MTM losses from surging bond yields had surpassed a third of a trillion, the tally is now three times greater, with total MTM losses soaring to $1 trillion just two days after the presidential election.

As Bloomberg calculates, more than $1 trillion was wiped off the value of bonds around the world this week on concerns Trump’s policies will unleash a debt tsunami, and are seen boosting spending and quickening inflation. They are also expected to lead to much more QE as there will be trillions in government budget deficits that need to be funded.

As a result the Trump Tantrum, the capitalization of a global bond-market index slid by $450 billion Thursday, a fourth day of declines that pushed the week’s total above $1 trillion for only the second time in two decades, Bank of America Merrill Lynch data show. 30Y yields jumped the most this week since January 2009, and the week is not over yet.

At the same time, global stocks gained $1.3 trillion in the same period, on hopes inflation will lead to higher revenue; however this divergence will not last as a spike in inflation, if it arrives, will wipe out profit margins, and  furthermore as Dalio explained to 17 year old hedge fund managers, "since those interest rates are embedded in the pricing of all investment assets, that would send them all much lower."

More importantly, Robert Rennie, head of financial markets strategy at Westpac in Sydney, confirmed what we said previously, when he wrote in a client note that “we are seeing carnage in Asian FX markets. It’s providing a very strong reminder that the S&P 500 is not the correct barometer of Trump-driven risk aversion -- it’s Asian currencies."

And as a result of massive, pervasive central bank intervention overnight across Emerging Markets, it means that one again central banks are terrified of even the smallest drop in equity values - now propped up through the EM FX channel - although as Citi explained yesterday, even the Central Banks' time is coming.

As we showed yesterday, Trump is making yields great again not only in the US but also in Europe, where government bonds extended their selloff Friday, with the yield on Italian 10-year securities climbing above 2 percent for the first time since September 2015, while benchmark German 10-year Bunds declined for a fifth day, pushing the yield to the highest since February.

“We do view the election of Donald Trump as a game changer,” said Adam Donaldson, head of debt research at Sydney-based Commonwealth Bank of Australia. “The strong bias toward fiscal expansion and inflationary policy represents a stark change to the malaise of recent years. This opens the door for the Fed to hike in December, but also more quickly in 2017 and 2018 than previously expected.”

The market value of Bank of America’s Global Broad Market Index, which tracks more than 24,000 bonds around the world, has slumped by $1.14 trillion this week to $48.1 trillion. The only previous week it fell by more than $1 trillion was in June 2013, when the Federal Reserve under Chairman Ben Bernanke was threatening to reduce debt purchases, leading to a bond selloff that became known as the “Taper Tantrum.”

Should bond yields spike again today, the Trump presidency week will go down in history books as leading to the worst global bond rout in history.

What is troubling for bond investors, who as recently as a few months ago saw all time record low global bond yields, is how quickly gains across bond markets have been wiped out:  what promised to be a bumper years for bonds is in danger of evaporating. U.S. government securities handed investors a loss of 2.9 percent this week, paring this year’s gain to 6.3 percent. There’s an 80% chance the Fed will increase rates at its Dec. 13-14 meeting, up from 76 percent odds at the end of last week, according to data compiled by Bloomberg based on futures, which means even more losses.

Some see this as confirmation inflation is about to spike: “Inflation is rising worldwide, and we see the Fed hiking interest rates next month,” said Birgit Figge, a fixed-income strategist at DZ Bank AG in Frankfurt. “The election has just added to that.” We disagree for the reason that there is simply just too much debt to sustain higher interest rates, and as a result the next global recession (if not depression) and market crash are around the corner.

Meanwhile, in the most troubling development, demand for U.S debt is waning. A $15 billion auction of 30-year bonds Thursday drew bids for 2.11 the amount available, the lowest since February. A sale of 10-year notes on Wednesday had a bid-to-cover ratio of 2.22, the least since 2009.

This means that as natural buyers of US debt dry up (recall that China is already liquidating its US Treasuries at a record pace), the Fed will have no choice but to launch another round of QE.

The most interesting question, at least for us, is how Janet Yellen will set the stage for the next debt monetization: historically it has involved a major economic slowdown; that however will be difficult at a time when the Fed is hiking rates, so look for the economy to "suddenly, unexpectedly" deteriorate in the coming months.

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BabaLooey's picture

Mark Cuban

Ass bleeding much?

Fed Supporter's picture

I love it how the Fed was supposed to be creating inflation for the last 8 years but failed miserably until, you got it Trump is elected and they know he is going to spend a ton of money on real things and it will create real inflation, but it will benefit the little people.  Why on earth if they know this, did the fed not encourage the gov to spend more to create the inflation.  Oh thats right they didnt really want the economy to grow and help the little people.

Silver Bug's picture

These fiat markets are a complete and utter farce. They are due for a major correction and is going to happen to whoever was president. The elites are GOING to try and blame this collapse on Trump, this is their last ditch effort to bring him down. It is our job to resist and explain this to everyone. Its time to swallow the medicine and move onto a REAL, long lasting system. In the meantime, keep stacking.



BabaLooey's picture

It is our job to resist.............


.........and explain this to everyone.

Educating fools is folly

More Ammo's picture

Yep,  Added another 1000+ rounds of Brass, 1000+ Berger bullets and 5000 Large rifle primers to my stack this week.


Anyone know where I could find some H4350?  Looks like I am going to have to settle for H4831sc.  Has anyone tried Reloader 23?

Thebighouse's picture

The price of bonds has been bullshit for a long long time, supported by "vapors" of central bank intervention.


Honest price discovery should bring their price down and interest rates back to HONEST, market driven price, not interventionist fantasy.

B-Bond's picture

Sometime in the future 007 given FED assignment much to Spectre's relief.

Place your bets! 

Bill of Rights's picture

Price discovery lol

GreatUncle's picture

It might be best not to know price discovery if price discovery = 0.

Hey matey it is $100 bucks, really it is ... just believe.

If you don't beleive we will set the super predators on you and the snowflakes.

More Ammo's picture

Correct.  I am converting my digital FRN's to something I can stand in front of and guard as fast as I get it.

LawsofPhysics's picture

The bankers just made a trillion in paper claims "disappear"...




Only 800 trillion more to go....

Sorry you banker/financier fuckers, we will have your heads eventually!!!

Jack of All Trades's picture

Bond market closed today, but expect more air to come out of the bubble next week.

It's a yuuuge bond bubble after years of interest rate manipulation by Mr. Yellen, et al.  Trump is only candidate with cajones to call out Fed shenanigans.

Keep the popcorn ready!

bullet's picture

fed could not raise inflation expectations in 8 years... Trump 2 days...

GreatUncle's picture

Yet again Trump cast as the villain ... fucking stupendous he won, scratched his ass and $1T goes up in smoke.

All of this was done on the previous presidents watch like Obama.

Somebody needs to be put on trial for allowing the system to be in such a state that electing a new president could wreak such havoc.


falak pema's picture

its called the financial economy stupid; and it is in panic mode; aka on a volatile roller coaster.

Whats new in unicorns to the moon town of capitalism pumped on ZIRP steroids?

Don't blame the crony clowns blame those for whom work the banksters.

The real money behind the curtain.

dogismycopilot's picture

Recent Saudi bond buyers....anyone know how that paper is trading?

WorldvsAmericaWW3's picture

Real estate, bonds, stocks, treasuries, currencies, equities will all seek market value in 2017, any gamblers willing to bet its going upside will lose badly to the downside bets. In Americas most fun small town, Real Estate is already down 10-15% since Septemer 2015 top, and glut of condos are being finished right now at 450k to over 1 million. Buyers are evaporating faster than a crack rock in a junkies hand.

Yet the local Realtors, laugh when i tell them, i sold all my real estate, ill be a buyer again at the bottom next summer!...

My guess, Federal Reserve moves rates up in December as they will hop for stellar crash and blame the Trumpians.

Average Americans house, car, 401k and retirement account and job is about to be transfered to the 1%.

Prepare accordingly


LawsofPhysics's picture

Buy low sell high...


Same as it ever was...

silverer's picture

"...the Trump presidency week"
Still Obama's economy. Trump is an ordinary citizen. Trump is not president yet. No policies put in place, no changes at all by Trump. You own this, Obama. You and the Fed. Lock, stock, and barrel.

silverer's picture

For my negative admirer: Keep melting, snowflake. Want to do something useful? Go find out what Obama did with 11 trillion dollars that he added to the national debt. We've been warned for months by honest, truthful people that this was coming. Ann Barnhardt told everyone to get out of the markets a long, long time ago. Ellen Brown, Bill Holter, Peter Schiff, and many more have been sounding the siren. You can choose to hang your hat on MSNBC in Unicornville. That's your choice. Good luck with it.

dogismycopilot's picture

preach it brother. I'd give you more upvotes if i could.

wisehiney's picture

I will be adding to the stack as this "sudden, unexpected deterioration" in the economy takes place.

When yellen is justified to begin qe, there will be no more precious available.

wisehiney's picture

Watch for a massive rush back into treasuries as this "deterioration" takes place.

Now is the best buy on tbonds since forever.

Rainman's picture

exactly, nobody yet sees the flight to ' perceived safety '

Billy Shears's picture

Does this mean no rate hike in December?

Grandad Grumps's picture

Will the banks recognize those bond losses or will they magically wave them away setting them off against derivatives that will never be paid?

Ghost Writer's picture

I was worried that the election might change things, but zero hedge is still predicting the end of the world, so I guess everything will be okay :-)

Quinvarius's picture

Treasury margin calls are going force stock market liquidation.  Today's close could be a real stinker.  There is no reason for the cabal to keep this charade going.  Obama and Clinton lost.  The stock market as election propaganda meme is dead.  The total humilation of the political and banker mafia will make them want revenge.

chickadee's picture

Deutsche Bank must be making money on this trade.

David Merrill's picture

Hello Everybody;

This Complaint is not just about the $23M already on account. Here is the pdf - you will want this on disk because the Tenth Circuit Executive and clerk of court for the USDC Denver have both decided against publishing this complaint on PACER. Here is the trust law theft warrant from 2003.

Bishop Castle from the airplane.