capitulation day
+249...
...nobody here in palookaville...
...knows anything about bonds...
THE END OF MORAL HAZARD
...but we know about debt...
...bad debtors pay more...
...credit is...
...where credit is due...
FEAR OF 'FLATION
...he who pays the piper...
...calls the tune...
...not so good when you're in a hole...
STOP DIGGING
..."The Treasury bond sell-off is now putting pressures on other markets in the economy. We should worry most about housing where borrowing rates are rising notwithstanding the Federal Reserve purchase programme. Indeed, according to data released on Thursday, already 12pc of US households are facing difficulties meeting their mortgage payments.
Housing is still central to the stabilisation and eventual recovery of the US and global economies. Any further decline in house prices will erode the collateral many Americans borrowed against, dampen their already-fragile consumption appetite, and increase the headwinds facing a banking system that is finally regaining its footing. The US can ill-afford a further sell-off in US bonds at this stage in the economy's rehabilitation process. Yet there is no easy way for policymakers to address this challenge.
As an illustration, consider the dilemma facing the Federal Reserve. Should the central bank step up its purchases of both Treasuries and mortgages in order to stabilise interest rates, but at the risk of adding to the distortions in these markets; or should it refrain from intervening further and risk a return of widespread economic and financial disruptions?
I suspect that, when push comes to shove, policymakers will opt for greater purchases of mortgages and Treasuries – not because they really want to, but because the alternative is viewed as worse.
Believe it or not, there is a silver lining in all this. As they contemplate this difficult situation, they can draw some comfort from one thing: with the anchoring of the short-term policy rate near 0pc, the steepening of the yield curve is generating significant profits for banks.
Remember, banking is fundamentally about mobilising cheap deposits (at the short end of the curve) and, supported by deposit insurance and central bank liquidity windows, lending at the longer-end of the yield curve. Come to think of it, the smartest trade for investors today is to find a bank that, unencumbered by legacy issues, is able to take advantage of an enormously attractive environment for old-style banking."
...Mohamed El-Erian is chief executive of Pimco....
...or...
...follow the money...
...me...
...I wonder about the banks, the shadow banks, and the men that run them...
...has it all been deliberate?...
...surely not...
...who would benefit...?
..." For a long time, this column has warned that the bond-market vigilantes would ultimately rebel against the Western world's profligate borrowing and spending – not least the ill-judged, cowardly and ultimate grotesque "bail-out" packages for well-connected banks that should anyway be allowed to fail...."
...Liam Halligan...
