Here come the bond vigilantes

The Swiss-based institution said losses on US Treasury securities alone will reach $1 trillion if average yields rise by 300 basis points, with even greater damage in a string of other countries. The loss could range from 15pc to 35pc of GDP in France, Italy, Japan, and the UK. “Such a big upward move can happen relatively fast,” said the BIS in its annual report, citing the 1994 bond crash.

Of course, it\’s all because there is talk of the Fed stopping QE. But the winding down of a bubble of artificial prices is never a pleasant thing to watch or go through.

4 thoughts on “Here come the bond vigilantes”

  1. I am in a bit of pickle with my analysis; can anyone help me?
    If, as Richard Murphy says – and he can’t be wrong because he’s a chartered accountant, economist AND tax expert – then the gov’t debt just disappears through QE. Well if that’s the case, unwinding QE – and Ritchie hasn’t yet explained the mechanism for that – then nothing will happen, no bond yield spike, nothing. So is Worstall and the BIS on about?

  2. “I am in a bit of pickle with my analysis; can anyone help me?”

    Stock vs flow. Tapering of QE is removing the flow, leaving the natural market demand. We haven’t got to the removal of the stock yet (selling vs. cancelling).

  3. Government debt doesn’t dissapear when the Central bank buys Government debt during QE – after the bank has purchased of the debt, the debt payments are paid to the Central bank.

  4. Thank you guys but I was being facetious; I’m sorry.
    On the other hand, that means that Ritchie WAS wrong. That’s impossible!

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