Government Bond & Mortgage “Meltdown” Crushes NIRP

Government Bond & Mortgage “Meltdown” Crushes NIRP

And the spike in mortgage rates will come in handy.

The situation in government bonds – variously labeled with “bloodbath,” “rout,” “carnage” “meltdown,” or similar propitious terms – continued on Thursday.

Already in November – so not counting the “carnage” today – the Bloomberg Barclays Global Aggregate Total Return Index lost 4% or $1.7 trillion, according to Bloomberg, “the deepest slump since the gauge’s inception in 1990.”

While global stocks rallied in November, the gains – $635 billion – were outright puny compared to the $1.7 trillion wiped out in the much larger bond markets.

On Thursday it got worse. It started in Europe where government bonds got crushed after speculation surfaced that the ECB might not keep buying bonds until hell freezes over, that in fact it might begin tapering its QE program as soon as next year. The markets were aghast.

When trading started in the US, all heck broke loose. The 10-year Treasury had already gotten beaten up all November, with the 10-year yield up 56 basis points, the biggest monthly jump since 2009, according to Bloomberg’s math. By midday Thursday, the 10-year Treasury had fallen hard, and the yield had spiked to 2.49%, the highest since June 2015, before settling at 2.45%, up 8 basis points for the day (via StockCharts.com):

us-treasury-10-yr-yield-2016-12-01

The 30-year Treasury yield jumped 8 basis points on Thursday to 3.10% (via StockCharts.com):

us-treasury-30-yr-yield-2016-12-01

In terms of dollars and cents, the CME CBOT 30-Year US Treasury Bond Price Index has now lost 8.5% since Election Day, and 14.8% since July. This is a bitterly ironic twist for those investors who consider them among the most conservative investments in the world (via StockCharts.com):

us-treasury-30-yr-price-2016-12-01

And the mortgage market had another bad-hair day, with the 30-year fixed rates surging to 4.25% for borrowers with high credit scores, and rates were quoted as high as 4.375%, a phenomenon last seen in September 2014.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.