Source: Lior Gantz for The Gold Report 03/24/2017
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The biggest bubble of all is bursting—the bond market, where companies and the government borrow money—and it’s twice as big as the stock market, says Lior Gantz of Wealth Research Group.
The yield on 10-year U.S. Treasuries is now twice as high as it was last July.
At 2.46%, today’s investors are lending the largest debtor in the world their own funds for a decade, while official inflation is 2.50%.
High yield investments are hard to find, but this company, for example, yields 8% for years.
The ZIRP (Zero Interest-Rate Policy) and NIRP (Negative Interest-Rate Policy), which central banks worldwide adopted for close to a decade while the credit was deflating from the system, didn’t spark runaway inflation like many investors presumed.
There was too much unwinding of debt, and not even “easy money” policies could spark the attention of the average worker to originate new debt in their name.
But corporations, especially multinational ones, did take advantage of these policies.
Since the economy was sluggish, they wanted to generate “paper profits” by borrowing cheap money and buying back their own shares.
They also issued corporate bonds, which investors swallowed up since they yielded more than government bonds.
In my personal portfolio for 2017, I anticipated the gold market to be strong.
Now that the economy is picking up steam and employment is stronger, rates are rising, as people are willing to borrow—they “feel good” about the future.
Because government bonds are paying higher yields, the spread between corporate bonds and Treasury bonds is shrinking.
This means that, as absurd as it sounds, investors are going to loan money to the government again since it can print …read more