In this week's Off The Cuff podcast, Chris and Wolf Richter discuss:
- The Coming Rude Awakening For Bonds
- Spiking yields are about to crash prices
- Multi-TrillIon Dollar Deficits
- The US is spending much more than it admits to
- Kryptonite For The Housing Market
- Higher interest rates & unfavorable tax code changes
- Pension Woes
- Most pension plans will soon be in a world of pain
Chris and Wolf marvel at the bond market's apparent indifference so far to rising rates. Rising rates, of course, mathematically mean bond prices should lower — but that hasn't happened much yet. With the 10-year Treasury nearly at 3% now, that resistance can't last for long. Especially if the Fed proceeds with its declared program of quantitative tightening this year.
Wolf explains the ticking time bond in the bond market thusly:
The corporate bond market is still completely blowing off the Fed. It's just ignoring it. The convenant-lite bond and leveraged loan issuance is hitting records, and nobody's paying any attention to anything. High yield bonds are performing superbly well. I mean, risk doesn’t even matter right now.
So to get the attention of the corporate bond market, something would need to happen. And eventually it will happen. There will be a big surprise, and then you'll have the corporate bond market reacting very suddenly, and there could be a chance that credit will freeze up for some of the higher risk companies as it did during the oil bust.
by masterofmydomain