Warning- Bond Dislocation in Progress

Hold on to your hats....this might be the start of something that cannot be controlled....a bond dislocation will utterly destroy what's left of our economy..

For those wondering....a dislocation will cause the cost of borrowing to become prohibitive, which results in

1) Numerous additional homeowner defaults
2) Large number of additional banks become insolvent
3) Large number of additional state governments default on their debt


Source

The treasury curve has just imploded, with the 10Y, a massive outlier (especially in a 2s10s30s curve), just hitting a record steepness. The 2s10s just broke the previous wide of 273 bps and at last check was trading at 275 bps. Stocks, as expected compliments of the mysterious Spoos (in)visible hand, still defying gravity.

Source

Guys, this is the start of the bond market dislocation that I have written about for the last two years. It may stop or it may accelerate, but this much is certain - even if it stops here the dream of a 4% mortgage that Bernanke has hawked as the "key" to housing stabilization is not going to happen.

Edit for clarification

[edit on 27-5-2009 by RolandBrichter]

Mod Edit: All Caps – Please Review This Link.

[edit on 28 May 09 by Gools]

This kind of news makes me wish it was really hot outside and that I had a slip-n-slide and a few cases of beer to play with.

You saw that right - the 30/fixed is now being quoted at 6.5%, up nearly 30% in one day.

Note to the government: You smell of wee and I hate you.

It's all their fault.
We're doomed.
I have a slip n' slide, wanna come over?
BYOB!

[edit on 5/27/2009 by Tentickles]

reply to post by Tentickles


I'll be right over

Slumping Treasury Bond Prices Send Stocks Lower

Wall Street's rally is going back on hold as investors worry about how much the government is borrowing. Stocks turned lower Wednesday afternoon, sending major indexes down about 1 percent, after trading mixed earlier. Prices for the benchmark 10-year Treasury note slumped, driving its yield up to 3.66 percent from 3.55 percent late Tuesday.

finance.yahoo.com...

Kilgore: I love the smell of napalm in the morning - Apocalypse Now

[edit on 27-5-2009 by warrenb]

Outside now!!
While we still have yards left.

This is the scariest money news I have read in years...making me feel like I have been wallowing with fleas from the circus.

I'll bring the ice cream sandwiches then.

Peace...

Sometimes I hate it when I am witnessing history from my computer screen.

Oh CNBC How I hate you so much:

“S&P 500 at 870 will be the floor,” Landesman told CNBC. “It’s not very far from here and that makes the upside/downside risk/reward potential of the markets very attractive.”

He said he is a fan of the cyclical sectors.

cnbc.com

Originally posted by warrenb
This kind of news makes me wish it was really hot outside and that I had a slip-n-slide and a few cases of beer to play with.

Sounds like a plan...if y'all like beer, I'll bring a case of 3 Fonteinen Schaerbeekse Kriek...we'll forget about this mess in a hurry!!

For someone not well versed in finance what effect apart from house prices in America will this have on a global scale?

Ok guys, for people like me, not real savvy in the area of bonds.

And also for the 60 percent of page views coming from non members.

What exactly does this mean on a personal level?

I know basic finances and a little advanced from college, but would like to hear opinions on it. Without getting flamed mind you!

reply to post by Republican08


I believe Denninger summed it up very well:

By the way, this makes the payment for a $200,000 note at 5% worth only $170,000 at 6.5%.

Bluntly: Bernanke's screwing around just cost you 15% of the value of your house IN ONE DAY.

When the Treasury Market dislocates risk premiums go to the moon and EVERY sort of duration credit gets more expensive all at once.

The market calls all bets, Bernanke went all-in with 2-7 off suit, the flop came up A-A-K and the bond market is grinning.

Anyone care to bet what the bond market has for hole cards?

This will translate into corporate funding costs and when it does you're going to see a staggering impact on Corporate America, triggering another monstrous wave of bankruptcies.

[edit on 5/27/2009 by Tentickles]

reply to post by Republican08


Pretty simple explanation taken from "lizardqueen":

Here's how I understand it

The more we borrow, the more likely that we will default on our debt, and the more we water down our currency making the existing yields on the bonds too little to be worth lending for in a currency that's losing value.

So the lenders (foreigners, mostly) say "no more" and we have to raise the rates we pay them in order to attract them back.

This rise in rates means that an increasing portion of our budget is spent on debt service and not on more productive things.

It also means that now that the foreigners can get a higher rate of interest on the gov't debt they buy, the market for existing lower-rate non-gov't and gov't debt will drop, tanking bond prices across the board.

New bond issuers will have to raise the rates they pay their lenders to attract interest in their bonds, raising debt service costs for them too.

This will spread to mortgages as well. Mortgage rates will rise, causing an increase in the rates ARM and Option ARM holders will have to pay, forcing even more of them into foreclosure and making those assets that we issued that debt to buy even more worthless.

Lather, rinse, repeat.

Edit to add:
1) Numerous additional homeowner defaults
2) Large number of additional banks become insolvent
3) Large number of additional state governments default on their debt




[edit on 27-5-2009 by RolandBrichter]

[edit on 27-5-2009 by RolandBrichter]

reply to post by RolandBrichter


Man, California is so screwed....

So horribly screwed.

reply to post by RolandBrichter

Modifying nontraditional mortgages will succeed for many people, but most such modifications will end up in default within a year, a major ratings company predicts.

www.latimes.com...

reply to post by warrenb


Like I said we're screwed to the bone.

It was only a matter of time, but now that it is here it makes you rethink things.

reply to post by RolandBrichter


After a while i'd assume that eventually the out of towners would realize that even with a high rate it's still even a harder struggle on our behalf to pay it back, even with a higher interest, and would stop right there and a complete chokehold.

This would with a watered down currency, say a man with 1,000,000 dollars tucked away, say the currency gets brought down fifty cents to the dollar (Yikes) he'd only have 500,000 dollars. But the money wouldn't change would it, just the price, the dollar menu would now be the 2 dollar menu!

Gas would be 4.00 a gallon, and would seem to cost more, but really your money just isn't as expensive as it used to be.

Then housing would collapse further and we know how the gov't hates the campgrounds so more homeless people, and eventually, acorn like projects and stand ins, were this is my house and you can't have it.

It seems like not only is the gov't at fault but the people are at it to!

This looks messy, whats a good timelline of the particular shtf!?

reply to post by Republican08



You got it...a quick study!

Timelines, timelines...well, nobody can know...this has only happened once before in the US...guess when?

It theoretically could come unglued as soon as tomorrow...but more likely we will trudge through years and years of muck....unless something drastic happens....like...oh, I don't know....a revolution, or WWIII perhaps?

The BIG difference between now and the last depression was that the government was not directly keeping people in food, houses, convertibles, clothes, 55" plasma flatscreens...savy?

In the 20's and 30's folks were alot more self reliant, so when TSHTF, there was trouble, but nothing like what will happen when our current crop of dependents get their goodies cut off.....they're likely to get kinda agitated about it


[edit on 27-5-2009 by RolandBrichter]

reply to post by RolandBrichter


I can't see people getting nearly upset about lack of food, as persay lack of American Idol XXII.

What was that line in the movie. Sheeps and Lambs I think.

"What good is a Lamborghini when the roads are torn apart and the houses are crumbled to the ground."

Something like that but you get my point.

reply to post by warrenb



I wanna' come play on the slip n' slide with you and Tent!!!

POURING rain here in South Texas,wouldn't even need a hose!

Will bring a pole for chits and grins?

This has been whispered about for a while and as the OP points out,unless drastic and immediate measures are taken (and I have no earthly idea what they'd be...my Magic 8 Ball is on vacation...) it could very well be the final straw.