The Bond Dream Room

[mathjak107]

it is a little early for high yield yet ... the interest on them will be insanely high once a lot of BBB is no longer investment grade ...

[pmward]

The Fed just announced unlimited bond buying for all types of bonds (including corporate). Bonds were going no-bid at times last week. This unprecedented move should grease the bond markets gears again and get things moving (not to mention get bond ETF's back to NAV). Bond markets were basically broken last week. With the Fed guaranteeing functioning bond markets we should see bonds start to "work" again, and likely a calmer equity market as well (at least one that only has to worry about the virus, not the virus and lack of liquidity at the same time).

[Cortopassi]

I was amazed that Kashkari used the word "infinite" on how much the Fed could buy/print last night on 60 minutes.

There was no hesitation.

For those who have been waiting for inflation, if these current times don't cause some level of it, it will be (insert word here)? Amazing? Unbelievable? Not Possible?

[shekels]

The Fed just announced unlimited bond buying for all types of bonds (including corporate). Bonds were going no-bid at times last week. This unprecedented move should grease the bond markets gears again and get things moving (not to mention get bond ETF's back to NAV). Bond markets were basically broken last week. With the Fed guaranteeing functioning bond markets we should see bonds start to "work" again, and likely a calmer equity market as well (at least one that only has to worry about the virus, not the virus and lack of liquidity at the same time).

Thank you FED. Can I have another BAILOUT.
To Big to fail all over again..

[dualstow]

Time for gold to shine?

[pmward]

And look at that. The Fed steps up as bond buyer of last resort and what happens? People and institutions stop panicking about whether or not there will be someone there to buy their bonds if they need to sell. The bond market becomes unstuck and starts working again. Bond ETF's go back to NAV. And, most importantly for us, bonds start actually working as a defensive asset again. Liquidity is what was needed.

[Kriegsspiel]

How will bond yields ever rise again if someone is always there to buy them and "artificially" keep the interest rates down?

[pmward]

How will bond yields ever rise again if someone is always there to buy them and "artificially" keep the interest rates down?

This isn't a matter of nudging the yield this way or that way. This is the secondary market we are talking about, yields were long since locked in. This was a matter of bonds in the secondary market literally going no bid, which was caused by massive systematic selling from the risk parity and vol targeting funds. These funds sell for no other reason than because volatility had went up. There was no fundamental reason behind the automated selling that stripped the market dry last week. What the Fed did is a crisis tactic. I would be curious to see how much they actually purchased today. Odds are it's less than you would assume. It's more of a calm the panic down tactic than anything.

[Kbg]

How will bond yields ever rise again if someone is always there to buy them and "artificially" keep the interest rates down?

And there you have it...why we should not assume anything about interest rates any more.

[boglerdude]

Only the Fed would buy long bonds with negative rates. When does it make sense to underweight them in the PP?

[Tortoise]

Only the Fed would buy long bonds with negative rates. When does it make sense to underweight them in the PP?

This is a good question. What percentage of total Treasury debt would need to be held by the Fed before the Treasury market could cease to be considered a true “market” in the normal sense (i.e. many buyers and sellers)?

Would Harry Browne have advocated continuing to hold an asset for which a normal market no longer exists?

[barrett]

Only the Fed would buy long bonds with negative rates. When does it make sense to underweight them in the PP?

I think many pension funds would still continue to hold them, no? One has to consider the alternatives of stocks, corporate bonds, etc. Isn't this how things have worked in places like Japan and Europe where rates have been negative?