How Bad Will The “Bond Massacre” Get?

(By Wolf Richter)

Worse “than the 1994 ‘Bond Massacre,’” with “sustained double-digit losses on bonds, subpar growth in developed markets, and balance sheet risks for banking systems….”

The backdrop: after 36 years of bond bull market, the amount of US bonds has ballooned to $47 trillion, up 24% from just ten years ago:

•US Treasurys ($19.8 trillion),
•Municipal bonds ($3.8 trillion)
•Mortgage related bonds ($8.9 trillion)
•Corporate bonds ($8.6 trillion)
•Federal Agency bonds ($2 trillion)
•Money Markets ($2.6 trillion)
•Asset backed Securities ($1.3 trillion)

Bonds dwarfs the US stock market capitalization ($27 trillion). Bonds are a global phenomenon with even bigger bubbles elsewhere, particularly in NIRP countries, such as those in Europe, and in Japan. That’s why bonds matter. They’re enormous. And the damage they can do to investors is huge.

So how bad might the next bond bear market get? Paul Schmelzing, a visiting scholar at the Bank of England and an academic at Harvard where he concentrates on 20th century financial history, published an unpleasant scenario on the Bank of England’s blog. He doesn’t mince words:

[A]s rates reached their lowest level ever in 2016, investors rather worried about the “biggest bond market bubble in history” coming to a violent end. The sharp sell-off in global bonds following the US election seems to confirm their fears. Looking back over eight centuries of data, I find that the 2016 bull market was indeed one of the largest ever recorded. History suggests this reversal will be driven by inflation fundamentals, and leave investors worse off than the 1994 “bond massacre.”

To arrive at his conclusion, he classifies bond bear markets into three types:

READ MORE HERE:  How Bad Will The “Bond Massacre” Get?

NEXT WEEK:  I will be putting out an article on the critical factor why the U.S. Dollar-Gold Peg was dropped in 1971.  While there has been a great deal of analysis and speculation why President Nixon discontinued the convertibility of U.S. Dollars for gold, this article provides the real data and information according to my analysis.

Also, I will be posting an article on PEAK SOLAR in California and what this means for the United States going forward.

If you have not yet listened to my interview at Future Money Trends on the ENERGY INDUSTRY IN CRISIS, I highly recommend you do below:

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9 Comments on "How Bad Will The “Bond Massacre” Get?"

  1. Steve I think bitcoin mining is an interesting development. Energy vs Currency.

  2. It will be interesting to see how the bond market massacre will effect the price of Bitcoin. That, along with capital controls and the cashless society trends. I’m bullish on Bitcoin but I like Dash, (Digital Cash) even more. They seem to have improved upon the few shortcomings that Bitcoin has (privacy, instant transactions, etc.).
    There are some 670 other crypto currencies out there but most are trash. This one is worth checking out. It could have much more utility after they achieve their goal of simplifying it for end users with a paypal type interface. It might turn out to be Bitcoin 2.0 in the end. Just my own speculation.

    • I think its better to own stock (physical gold and silver) than to own flow (fiat and crypto currencies).

  3. Kissinger pegged Saudi oil to the dollar bc he and Rockefeller and company knew they needed cheap energy to set up their corporate empire. Not mention all the other benefits that go along with it like exploiting slave labor which is another form of energy extraction and list can go on. The window is beginning to close on the Anglo American establishment it’s beginning to look like they’re running out of time and ww3 is really the only option left or some catastrophic event on that level

    • WW3 is for idiots who can not let go – It is going to be rough but we can survive well with hard work, better attitudes and compassion. – The mess made by the evil love of wealth by the elite should remind us to never follow fools blindly, especially for fleeting currency. – Stack on and prepare to pitch in and help.

      • Who is this “we”? The same fat, stupid, lazy westerners who were quite happy to extract tribute from the enslavement of the rest of humanity? The sociopathic twats who engineered this system will not “go placidly”. We sit back and watch, to this day, as people kill each other for access to WATER! We assuage our conscience by sending a few bucks/euros/quid to whichever charity most floats our boat and say, “Ah well, I’ve done my bit…”
        We have a great deal to learn about real suffering, by which I mean watching our kids starve. We simply can’t imagine……so we sing lullabies to ourselves, tell ourselves we’re God’s chosen people. “….going to be rough….”(?) NO SHIT!

  4. Steve
    There is a bullish looking charts for gold like the gold to money supply ratio
    But when compared to oil the gold to oil chart looks very bearish
    For the gold money supply chart to go back to the mean the gold to oil chart would literally have to go off the charts.
    Could this contradiction be an indicator of what the Hills group are saying about oil becoming worthless.

  5. Why buy gold?, Gold has risen nearly 9% in 2016, forecasts for 2017 is that gold up to $ 1,400.

    More information:

  6. Chief Boinken | January 9, 2017 at 8:47 pm |

    When will Wall Street equities get cut in half?? Soon?

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