jonc

So we've had the "credit crunch", best get ready for the bond crunch....

http://www.bloomberg.com/news/2014-0...#disqus_thread

Petem95

Interesting, however I'm not sure about it being the 'next' financial crisis -we're still in the current one! Yes we're seeing some growth now, but it's just debt fueled growth as a result of crisis measures - it's not sustainable and it won't last.

You can't keep on borrowing £100 billion + each year to add to our national debt of £1,400 billion forever. It's like someone who's virtually bankrupt getting given another loan - it's not a solution to their problems.

No political party really seems able to actually bring in real cuts as people are up in arms are the slightest things, so I expect we'll continue in fantasy land with a huge welfare state and free NHS etc until suddenly public sector workers and peoples state pensions suddenly stop getting paid. That's when things will get interesting :S

jonc

The problem is what happened with CDO's during the credit crunch could also happen with bonds. Investors have been pouring money in hundreds of billions into the bond funds for the past 6 years on the back of the credit crunch looking for "safer" places to invest. Now if the models used to value the bonds are wrong and turns out that they're overvalued, investors may start to pull money back from their bond investments and the fund managers will have to get rid of their holdings. However, bonds they are difficult to liquidate compared to stocks and if everyone starts to sell their bonds, who will buy bonds especially if there is a flood of sellers further devaluing bonds (which would be compounded should interest rates rises)? Much of the debt governments all around the world are issued as government bonds bought by other countries through Quantitative easing. Governments can't maintain a policy of quantitative easing indefinitely and liquidity in the bond market will eventually dry up, with the debts western governments already have, this potentially could be much worse than the credit crunch.

Chip

So people keep on saying and have been for a couple of years yet it hasn't happened has it.

If it does happen then there is nothing you can do about it so stop worrying about it and get on with your life.

Crisis?? What crisis

tony de wonderful

I can't say I completely understand this.

jonc

Basically the stimulus provided by government policies and central banks through low interest rates and QE have created an "unnatural" condition in the bond markets where yeilds are artifically low. Investors are only buying and continue to buy these bonds as they are backed by the central banks through quantitive easing and providing the liquidity in the market. The valuation and risk models used to assess these bonds are not taking into account the artificial intervention by the central banks and the demand for bonds which continue to grow ballooning to $100tn. Central banks cannot print money forever. This balloon could burst as QE tapers off and rates start rising with fund managers holding a decreasing class of asset struggling to find buyers. Good news is that the central banks are aware of this liquidity crisis unlike during the credit crisis, so one hopes they will be formulating some sort of solution to avert this crisis, though room for maneuver is small since rates are so low.

Petem95

Well yeah, head in the sand is one way I suppose!..

So if you earnt £50k a year, and borrow £20k on top and spent the lot - plus had debts of £2 million already how long could you go on for?!..

That's literally how this country is being run. Surely doesn't take a genius to work out does it?

Chip

Pete, Maybe, but worrying about it is futile, surely even you can see that.