bond market crash
Talk of a bond market crash has been building for months, and not just among obscure financial bloggers.
Articles sounding the alarm about a bond market crash have appeared time and again in many mainstream publications.
Recent headlines like "Danger Lurks Inside the Bond Boom" (The Wall Street Journal), "How Banks Could Get Blown Away by Bond Bubble" (Fortune), and "Beware the Bond Bubble in 2013" (CNNMoney) have raised concern among investors.
Here's the problem: Interest rates are at historic lows. That makes bond prices relatively high.
There's pretty much nowhere left for rates to go but up. That might be good for buyers of bonds in the future, but terrible for those who hold bonds stuck at low rates.
The Coming Bond Market Crash: The Three Moves Every Investor Must Make
Since last November, the U.S. Federal Reserve has been buying U.S. Treasury bonds at a rate of about $75 billion a month. That's part of Fed Chairman Ben S. Bernanke's "QE2" program, under which the central bank was to buy $600 billion of the government bonds.
But QE2 ended yesterday (Thursday), meaning the Fed will no longer be a big buyer of Treasury bonds.
So starting today (Friday), the U.S. Treasury needs to sell twice as many Treasury bonds to end investors as it had been.
But the problem is, who's going to buy them?
Not China, which is diversifying its trillions in assets to get as far away from the U.S. dollar as fast as it can.
Not Japan, which is trying to rebound from its March 11 earthquake, tsunami and nuclear disaster - and is focusing all its spending on reconstruction.
And - as we've seen -neither is the Bernanke-led Fed.
I'm telling you right now: We are headed for an epic bond market crash. If you don't know about it, or don't care, you could get clobbered.
But if you do know, and are willing to take steps now, you can easily protect yourself - and even turn a nice profit in the process.
Let me explain ...
A Timetable for the Coming CrashI'm an old bond-market hand myself - my experience dates back to my days at the British merchant bank Hill Samuel in the 1970s - so I see all the signs of what's to come.
Having the two biggest external customers of U.S. debt largely out of the market is a huge problem. Unfortunately, those aren't the only challenges the market faces. The challenges just get bigger from there - which is why I'm predicting a bond market crash.
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