In this report, I cover the early market action from London on Thursday, March 28th, 2019. I look briefly at the precious metals, the stock market, the dollar, the bond market, and the energy market.
Today I look at how the bond market has gone wild in the last few weeks and especially since the ECB and the Federal Reserve both did an about face and stopped normalizing their crisis monetary policy. I go through some of the basics and mechanics of bonds in order to explain how despite very low rates and sometimes negative rates investors and traders are still making money owning bonds.
My conclusion is that the bond market is in unchartered waters and that it is the only thing keeping the financial system from imploding and that fund managers have to play the game or else they will lose their spot on the dance floor.
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As the scales tip... this will not be pretty.
The central banks cannot continue the negative rate unless they buy those bonds. As a result, they hold loss on their balance sheet. For example, BOJ has a concealed loss of 40 billion dollar now. Next comes one of the central banks would fall down.
It would be great to see the Central Banks disappear as we do not need them. They are creators of moral hazard and encourage bad behavior by the bankers.