Tuesday, June 10, 2014

European Government Bonds Reach Multi-Century Lows In Yields

An incredible set of graphs below showing 10 year bond yields for France, Spain and Italy which have simultaneously fallen to the lowest yields in history. As a brief reminder; all three of these countries are on the verge of a massive government debt disaster. These bonds are being purchased by (insolvent) banks within their own borders using massive leverage. They are being purchased by investors who believe that the ECB will soon monetize (print money to purchase) all government bonds. If you want to take it one step beyond the ridiculous, please remember that a central bank printing money to purchase a government bond provides no fundamental strength to that bond because they are diluting the future return investors are paying for today. 

The world has become so twisted and distorted beyond reality due to the central bank interference around the world it makes it impossible to even try to quantify how enormous the catastrophe will be when these risk assets begin to unwind. Perhaps it will be large enough during the next collapse that someone will take notice and at least try to stop it from occurring again, but based on how quickly we have returned to the insanity of 2007 in financial markets around the world there is little hope that any lessons will be learned during the next disaster.


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