Monday, January 10, 2011

Bonds Are Doing Great! . . . Until They’re Not

Bloomberg has a pretty decent general overview of the corporate debt market—worth perusing.

For those too lazy to peruse, the upshot is, “Bond distress is at three-year low”, in the Bloom-speak parlance. In other words, everything is hunky dory in the corporate bond markets. So go out there and lend money to the corporations! You’ll do fine! Don’t worry! . . . Really . . .

The $12 trillion question, of course, is what happens when sovereign debts start to tumble this year—and what happens to bond yields when inflation starts to raise its ugly head. After all, when sovereign debts start going redline and/or inflation starts to rise, corporate bond yields start to widen—bond prices start to tumble. Banksters start throwing themselves out of windows. (On second thought . . .)

As I wrote over the weekend, UK inflation is coming on strong, and out in Asia, inflation is the big story, especially of foodstuffs. Since commodity prices across the board—PM’s, industrials, agro, oil—are all on the rise, and have been for the past year and a half, it’s reasonable to think that inflation will officially hit Europe and North America soon: Soon like this winter/spring. (Unofficially, ordinary consumers have known about shadow inflation since at least this past late-summer.)

And let’s not even mention sovereign debt bombs—I mean, bonds! Or bombs. Whatever. Hell, European sovereign debt is like nitroglycerin in a shake-and-bake pouch: Ready to go off at the first signs of trouble. Looks like the EU is strong-arming Portugal and Belgium into a pre-emptive “bailout package”—sort of like saving the two countries before they go into crisis mode.

But what’ll happen when Spain goes up in smoke? What’ll happen when inflation goes up? What’ll happen when sovereign bonds go bad?

Don’t worry. Don’t panic, either. Bloomberg just said it: Everything is fine—corporate bonds are fine. Or as Tony the Tiger would say, Bonds are doing gre-e-e-a-a-at!!! . . .

. . . until they’re not.


  1. What happens when the PRC begins to support European countries by buying their debt? Seems like it would be throwing good money after bad, but the have to do something with their reserves. An imploding Euro would take a very large, liquid option off the table.

  2. GL,
    Your use of the Tony the Tiger picture is inspired. I hope you are having fun with The Hourly G. I am having fun reading it, and the comments, as well.



Knock yourself out!

The cult of stability is a culture of death.