Cleanup On Constitution Avenue? A $1 Trillion Glut of Bonds Is Dwarfing Central-Bank Demand

The world’s major central banks aren’t purchasing debt fast enough, leaving almost $1 trillion of new sovereign bonds looking for buyers in the months ahead. The flood of fresh debt, sold by governments to fund pandemic-rescue packages, threatens to dwarf central-bank buying and swamp markets in many countries, according to Bloomberg calculations. By contrast, most of Europe is set to benefit from the European Central Bank’s purchases and may offer the best shelter for investors worried about a potential surge in bond yields.

The Treasuries market alone could see more than $1 trillion in net bond supply in the six months through Dec. 31, and strategists are predicting sales will comprise fewer bills and more longer-dated notes.

So far, domestic buyers have supported U.S. debt. But some of the market’s most loyal investors appear to be stepping away just when they’re needed most. Pension funds typically buy Treasuries to match their long-term liabilities, yet a proxy for their purchases of longer-maturity bonds — holdings of so-called stripped Treasuries — has fallen consistently since February.

With Senator Schumer (D-NY), Nancy Pelosi (D-CA) and Presidential hopeful Joe Biden (D-DE) all screaming for trillions in spending, this will only get worse.

Wipe out?

One Central Bank Is NOT Like The Others (Fed Erupts With Asset Purchases, M2 Money Grows At 24.9% YoY)

Yes, there are many central banks around the globe. But the US Federal Reserve is leading the way with a staggering 24.9% YoY growth in M2 Money Stock. M2 growth barely exceeded 10% during the US financial crisis and Great Recession.

In terms of Treasury holdings, the Fed is beating all other major central banks.

Fear The Walking Dead … Corporations! Zombie Firms Now 18.9% Of All Firms

Another example of the damage done by government shutdowns over the COVID-19 “epidemic.” The percentage of firms that are zombies is now at 18.9%.

“Zombies” are firms whose debt servicing costs are higher than their profits but are kept alive by relentless borrowing, according to Axios.

Also helping the rise of corporate zombies and debt is the endless liquidity and low rates from The Federal Reserve.

When nearly 1 in 5 firms are zombies, it is time to re-open the economy.

The Morning After! US Treasuries Surge, Mortgage Rate Spread Highest Since Q4 2008

It is the morning after the Fed panicked and lowered its lower bound for The Fed Funds Target rate to … 0%. Here is Fed Chair Jerome Powell calling to The Fed to take evasive action!

The result? US Treasuries yields are falling like a rock. US Treasury 10Y yields are down around 20 basis points this morning.

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And unless lenders lower their 30-year mortgage rates, the spread between Bankrate’s 30 year average mortgage rate and the 10 year Treasury yield is at its highest level since Q4 2008, the epicenter of the financial crisis.

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This morning before the US equities markets open, Europe is already down around 7% – 8%.

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Here is Fed Chair Jerome Powell wishing us all the best!

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