There is a $100 trillion bond market out there that has been priced by a handful of central bankers, not a planet teeming with exhuberant savers. The mad descent of the former into the whacky world of QE and ZIRP has caused a double whammy distortion in the bond markets of the world. So, no, there isn’t a savings glut in the world; there is an outbreak of destructive central bank bond buying and money market price pegging that is virtually destroying the world’s bond market. What we have is a fraud wrapped in a bogus theory. Only none dare call it that. At least, not on bubblevision.
These are your euro money markets on central planning. The ECB is attempting to help correct the distortions created by its QE program by lending out its holdings in order to grease the wheels of European repo markets, but as JPM notes, the central bank's program will likely not be sufficient.
- Shell Will Buy BG Group for $70 Billion in Cash and Shares (BBG)
- IMF warns of long period of lower growth (FT)
- Wall Street sanguine as it heads into worst earnings season in six years (Reuters)
- Switzerland First With 10-Year Bond at Negative Yield (WSJ)
- U.S. Dot-Com Bubble Was Nothing Compared to Today’s China Prices (BBG)
- Rahm Emanuel Re-Elected as Mayor of Fiscally Ravaged Chicago (BBG)
- Oil falls on U.S. stock build, record Saudi output (Reuters)
- White South Carolina policeman charged with murdering black man (Reuters)
- German Factory Orders Drop for Second Month (BBG)
- A third of Republicans support Iran nuclear deal (Reuters)
"...I don’t think we know enough about how the private financial system works under these conditions... If you are an institution that is doing well within the parameters under which you’re used to functioning, you will fight any change without any notion as to whether that change is good or bad. That’s because there’s a very large uncertainty premium associated with the change... "
Following Thursday's H.4.1 update by the Fed, is that, inexplicably, in the week ended April 1, the amount of Treasurys held in custody by the Fed jumped by the most ever, or $63 billion in one week, to $2.963 trillion.
We're just a little over two weeks into PSPP and signs are already beginning to show that the ECB is effectively breaking the market. "The soaring cost of borrowing government bonds in secured lending markets highlights the distortions caused by the ECB's asset-purchase scheme, which analysts say could clog up Europe's financial system," Reuters notes.
According to AXA’s Nick Hayes, the EGB bubble may end in a 2000 Nasdaq-style collapse. "The comfort with which investors are embracing negative yields is similar to behavior of those who had been underweight technology stocks in 1999 before rushing in."
When even JPMorgan strongly implies that the ECB's QE is about to fail, one short week after it started, now may be a time to panic: "In all, we note the above analysis challenges the ability of the Eurosystem to meet its quantitative target without distorting market liquidity and price discovery."
Someone call the ECB because it looks like the game is well nigh up. Greek FinMins are taking time away from photo shoots and looting pension funds to call out QE for creating equity bubbles and the mainstream financial news media has figured out that there’s an acute collateral shortage and that buying €1.1 trillion in bonds €15 million at a time probably indicates a forced deviation from the original plan.
Central banks' ability to distort markets, inhibit price discovery, and create systemic risk is alive and well as ECB asset purchases ripple through euro money markets. "The ECB’s liquidity bazooka will likely create the conditions for all rates money markets to stay in negative territory. This would represent a very challenging environment for investors, especially those focusing on the euro money markets, whose resilience to negative rates has not fully tested yet," Barclays warns.
Yesterday's 10 Year auction played a trick on the repo market, which was so short the underlying the repo was trading very special at -1.8%. Today, as we noted earlier, the shortness persisted, and not only in the 10Y but the 30Y as well, whose repo was negative for the second day in a row. Well, while the bet yesterday was wrong, today it was spot on, with the 30 Year reopening of 29-Year-11-month CUSIP RK6 pricing surprisingly weak, stunning the bond market when a whopping 2.1 bps tail was announced moments ago, following a High Yield announcement of 2.681%, well above the 2.66% When Issue.
Two months ago we showed, and explained in great detail, how in the new normal the role of gold is nothing more than a funding "currency" to allow the BOJ to sell Yen against it (on a borrowed basis, which is also why the LBMA halted reporting its GOFO data as of the end of February, as it would not be pleasant for the central bank cartel to demonstrate just how much institutional gold shortfall there developed following major BOJ interventions). So for all those who are curious what it looks like when the BOJ "enters the house", here it is...
After paying governments, you'll be paying corporates...
There is overwhelming evidence that the rampant money printing of the past decade or two has done nothing to generate sustainable growth in mainstream living standards and real wealth. Yet the monkeys keep rattling the cage, promising and demanding more ZIRP(and now N-ZIRP) and more fraudulent purchase of government debt with fiat credit congered by their printing presses. Consider some striking proof of failure...