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Bonds, Debt, and Doom

September 16, 2019

There’s been a steep slide in bond yields, and it begs the question – will we experience negative interest rates in the U.S.?

 

Because of central bank “wisdom,” there is more than $16 trillion of debt around the world that trades with a negative interest rate. That means bondholders are paying the government to store their money.

 

It defies logic.

 

Through their reckless policies, these bankers have destroyed the time value of money. How do they expect these strategies to lead to increased investment and economic growth?

 

European and Japanese banks are some of the primary reasons about a quarter of all government debt trades with a negative yield. Some scary statistics:

  • Half of all European debt has a negative yield

  • 85 percent of German debt carries a negative yield

  • All Swiss debt has a negative yield

Even some European high-yield or “junk” bonds are delivering negative yields!

 

Causing even more worry is the fact that ratings agencies are playing the same games they were before the last crisis. Competition has created a frenzy. Changes in ratings methodologies have moved markets, and it’s led to the same investment being rated as junk and AAA by different agencies.

 

Craziness! How do you know what you’re buying?

 

On top of that, the New York Federal Reserve Bank reports that subprime auto loans delinquencies are surging. The percentage of these loans that are 90 days past due jumped nearly 0.5 percent to 4.64 percent in the second quarter. That’s roughly the same rate we saw a decade ago when General Motors shed bankruptcy.

 

In other words, subprime auto loans are already going bad at peak economic crisis levels, yet the economy remains healthy. So, what will happen in a recession?

 

I feel like this can only end in disaster.

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