Europe Bond Market Collapse

Among the most popular bond investments Europe is the German 10-year bond. The ten year yield went from .54% to .72% in a single day. That is quite a massive loss for investors in the German 10-year bond. Think those bond holdings of yours are as good as gold, a safe haven against the stock market? No, think again. Portugal, Italy, and Spain are all thought to be potential default cases at some point in the next few years in addition to Greece. Each one of them has spiraling debt. And, as their bond rates rise, their chance of default rises, making them even more likely to default in a classic debt spiral.

I have been thinking that the next economic bust would not be for a couple more years, but my prediction might be a bit too optimistic. After Greece announced a likely default on its debts, bond rates across Europe skyrocketed. The whole downhill run from May is projected to have wiped out 450B($US) in market value from European bond holders. Of course that would be almost only government bonds, though corporate bonds rates have also been considered to be at excessively low rates in the long-term as well, and so those bonds are in bad shape in Europe as well. In case anyone doesn't know, bonds are simply loans given to an organization that are expected to be paid back in one large lump sum payment at the end of the loan period, while the interest rate is typically paid over the entire course of the loan.

The US is at a sensitive inflection point by many measures, where it is is likely begin a full-scale rally or crash in a couple of months. If EU bond market troubles spread to the United States, that would be a sure-fire trigger for an economic crash in the US, which in turn would likely spread around the world. The sub-prime loan collapse was the cause of the last US crash. Now, this European bond crash risks triggering another crash in the US. The Greece problem has now spread, but how far will it go?

Source: wolfstreet.com...

After a brisk spring stacking cannon balls the German DAX peaked April 8 at 12391.

www.investing.com...

From your link.

Makes you wonder to which well-connected hedge funds the ECB had once again leaked its policy statement and the all-important speech by ECB President Mario Draghi that the rest of us got see today. And today, the German 10-year yield jump to 0.89%, the highest since October last year. From the low in mid-April of 0.05% to today’s 0.89% in just seven weeks! Bond prices, in turn, have plunged! This is the definition of a “rout.”

It appears Germany called Greek debt crisis and knew that Greece would not be making their scheduled repayment today.

I would speculate the German government wanted to give advance notice of the June 30 end of agreement.

Some investors don't do well when there is esoteric news of hidden events that surprises them.

Edit: Watching to see how the world markets mirror the situation.
Here in the States the NASDAQ market closed at 4477.19.

a reply to: wayforward

Seems like quite a few events will coincide in the next couple of months.

that is a VERY unusual jump. i speculated in another thread that the greece situation is more dire than known, and that it could lead to EU collapse...... and a russian invasion, if the dominoes all fall as i see them doing.

a reply to: EA006

Like the "perfect storm".

You don't clip an Owls toenails unless you want to watch it die.

You don't fly a U2 alone into a hurricane to investigate.

When you feel the tension start to build its tempting to just take your meds and shut down.

Then you just glide in circles riding the outflow till the sound of your wingtips dragging on the asphalt wakes you up.