Global Bond Market Insanity

Just last week, Austria joined other eurozone countries in selling ultra-long dated debt … bonds with a 70-year maturity date.

Are you kidding me? Who in their right mind would loan money to Austria, or any other debt-ridden European nation, for the next seventy years? It’s crazy.

But here’s the real crazy part: The bond sale was very well received, with investors snapping up the 70-year bonds eager to earn 1.53% on their money for the next 70 years.

Good luck getting repaid!

But such is the upside-down world we live in today where nearly $12 trillion in global government bonds are trading with yields BELOW ZERO!

Until recently ultra-long bonds had been outliers in debt markets, where 10-year bonds are the norm and 30-year debt is considered the standard long-term issue.

But Austria’s latest offering makes it the sixth European country this year to sell bonds that don’t mature for a half century or more!

This year alone France, Belgium, Italy and Spain have each sold bonds with 50-year maturities, raising a cool 14 billion euros.

But that’s nothing compared to Belgium and Ireland. Both of those countries sold 100 million euros’ worth of 100-year bonds this year. Insane? You bet.

Record low bond yields and record long maturities just shows you how dangerous the bubble in government debt is. A bubble that will soon burst; costing investors trillions in losses.

You can’t blame governments for taking advantage of falling bond yields by extending the maturity of public debt and locking in low borrowing rates for a century. They’ll never pay it off anyway.

Who is buying this toxic debt? Insane speculators betting they can sell for a quick profit.

And who is buying this toxic debt? Insane speculators betting they can sell these bonds to the European Central Bank (ECB) for a quick profit. After all, ECB President Mario Draghi is on record saying he will “do whatever it takes” to stimulate inflation by buying bonds and other questionable assets hand over fist.

But it’s not just speculators, it is also pension funds and insurance companies that have been pushed toward the longer-dated debt issues in their desperate search for higher yields and steady income.

They ought to have their heads examined.

We are already facing a potential pension crisis worldwide, thanks to negative interest rates, and ultra-long-dated debt just adds fuel to that fire.

That’s because long-dated bonds are highly sensitive to even small movements in bond yields. And once yields begin to rise, pension funds will be in big trouble.

Just last week, global bond prices came under selling pressure and a buyer of those 70-year Austrian bonds suffered a paper loss of more than 500,000 euros by the end of last Thursday.

That’s a 5% loss – three times the annual coupon yield – in less than a week!

Mark my words, soon governments will be unable to service all this debt and will have no choice but to raise taxes, slash government benefits to the bone, crush pensions and confiscate portions of your wealth.

I have been warning you to stay away from government debt, and ultra-long-term debt is the worst of its kind.

My cycles are pointing toward a period of economic chaos ahead as all confidence in government is lost. Fifty- and 100-year government bond sales are a clear red flag that we’re headed for disaster sooner rather than later.

My advice: Steer clear of ALL government bonds. Because when this madness comes to an end, it will make the 2008 financial crisis look like a walk in the park.

Best wishes,

Larry

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

Comments 36

Siggy Latarski October 31, 2016

Will Euro PUT Options be a bust?

Ken Weaver October 31, 2016

I have some US Government Bonds maturing in the 1st Half of 2019 at approximately 2.5% ...... HOLD till maturity or SELL? Thanks for your INSIGHTFUL ADVICE.

KJ October 31, 2016

Thanks Larry. Great piece of valuable info from you.

Don Norbury October 31, 2016

Question ! Is municipal debt (muni'a) considered as bad as Fed debt ?

roger sanders October 31, 2016

How do I order a trailing stop by dollar amount on an existing stock so that the dollar amount specified stays put and does not rise if the stock rises?

Mini's included? October 31, 2016

Thanks for your bond advice! WW

Dr.Donnie Smith October 31, 2016

The sub-prime auto loan bubble is nearing collapse and some people are going to get hurt. Unbeknownst to the American people, experts have explained that in just the past 8 weeks multiple warnings been issued that the United State’s $1 trillion sub-prime auto loan bubble was beginning to collapse, this past week it became so severe the Bank of America issued a recession warning telling its elite customers “this market is scary.” British-based multinational banking and financial services company HSBC, likewise, issued a “Red Alert” warning all of its clients to “prepare for a severe market crash”. One of the first victims/casualties of this sub-prime auto loan bubble will be the German global banking giant Deutsche Bank that is already nearing doom and laying off tens-of-thousands of it workers worldwide. I do not recommend a wait and see approach to this looming crises…!

H.T.J. October 31, 2016

Finally ... here is something I fully agree with you in Larry ... This is madness beyond madness !!

John S. October 31, 2016

Congratulation on your recent call in falling oil prices Larry. Hope your gold calls prove as successful.

anthony g October 31, 2016

when do we get the sell off in the Dow

William D. Hindenlang October 31, 2016

Larry, I am a factory worker here in the state of OHIO, I have been warning others of which I work around, concerning the coming financial crisis that will make 2008 look like a walk in the park. I just don't understand why so many who has gone through the 2008 time period that they can't see what is happening and refuse to believe your words of wisdom.

Sawbuck November 1, 2016

William, My advice for what it's worth...Do not advise people you know well about what they should be doing with "their" money! If you are wrong you could be the loser!

Harry Brett October 31, 2016

Dear Larry, It seems to me that though the US Election "winner" whoever that is, will certainly be very disruptive and continue the onward march to debt disaster, the Italian Referendum in November is far more likely to be the trigger for global bubble bursting. A vote of no confidence in their PM followed by the election of Mr Beppo and Italy's exit from the Euro in tandem with the collapse of their banks would accelerate the exit of other southern nations. Particularly as enormous German Bank bad loans to Italy,Spain and Greece means that Mr Merkel cannot bail them all out. Not to mention French and Dutch bad loans... Thank you for all your valuable insights over the years. Harry Brett

Grimmy October 31, 2016

Who would buy a bond that matures long after you have left the earth?

Jan October 31, 2016

Hi Larry, I just returned from 12 days in Thailand. A great trip from Bangkok, Kanchanburi, to the Golden Triangle and saw what the forward thinking Chinese are doing. Met wonderful kind people. Keep giving us your precious information. Thank you. RWR

wendy walker November 2, 2016

if you don't mind sharing, what are the forward thinking Chinese doing?

Jim Lowe October 31, 2016

Bonds have been scaring me, regarding their stability, the last few years. They look like a mine field with lots of mines in the field. Thank you for your honest assessment of them. I subscribe to about 7 financial newsletters, like yours, and most of them advise to have 1 to 3 years of cash stashed in a safe place in case the government makes an economic serious mess of things.

Aidan October 31, 2016

Scary, Is there a short trade opportunity here somewhere?

juan October 31, 2016

Dear Larry : They would be all repaid. They -in Europe's case together w/their partners, everywhere else in the "first world" on their own- are the ones printing the bills -as well as the electronic ones, named bonds-. Nobody guarantees the value of them, by the time they mature -same like here-; and it is not relevant if it is still named as Euro -or with the support of some law changed to Austrian dollars or different. The real analysis is related to the sound of the investment. Soon would be mental health professionals in charge of dealing with investors.

James C October 31, 2016

What does Larry think of potentially Mr Trump building a wall between Mexico and the rest of the NAFTA countries, an agreement that came into existence on Jan 1, 1994. Does Larry think this will lead to a dollar glut an excess supply of dollars in the hands of foreign monetary authorities that developed during the late 1950s and early 1960s. Surely Clinton looks a safer pair of hands for the most important job in the free world.

Jurban November 1, 2016

A long as Hillary can make money for herself, it doesn't really make any difference what the rest of the U.S. does. Trump may surprise you.

Jim November 2, 2016

Clintonocchio will do all she can to confiscate as much private wealth as she can get away with. She really doesn't even try to hide it, other than to attempt to fool people into thinking they aren't in the target zone.

Yield Curve November 3, 2016

Jurban: I was a senior analyst and portfolio manager for two of the world's largest buy side asset management firms for 26 years. Before that, I served as a budget/legislative aide in the Senate Ways & Means Commitees in the MA State House & U.S. Congress, so I'm very familiar with global economic, fiscal and monetary policy, the stock & bond markets, politics and local & national budget policies. Because of this experience, I strongly believe that if Trump is (God forbid) elected President, the only "surprise" will be the degree of damage Trump's destructive, divisive and deeply flawed tax, economic, fiscal, trade, social and foreign policies will inflict on America's middle/working class, the U.S. Constitution, our country's reputation and relationships with key allies and critical issues such as climate change, the proliferation of nuclear, biochemical & chemical weapons, terrorism, and the danger of rising nationalism and intolerance to name just a few. Trump is intellectually, temperamentally and morally unfit to be President and his profound ignorance, lies, hypocrisy, racism, misyogeny, xenophobia, religious bigotry, narcissm, illegal behavior and checkered business career including his conflicts of interest vis a vis his business ties to Russia & Eastern Europe and his inexplicable support for Putin, etc., will leave our country and its citizens more vulnerable to war & terrorism, severe economic and monetary damage, cultural divisions and chaos and climate-induced destruction than any Presidential candidate in U.S. history. Trump is a dangerous, bombastic, egotistical, thin-skinned, ignorant, authoritarian bully who'll leave our most important domestic and foreign institutions in shambles. If you care deeply about your children & grandchildren's future and the future of our democracy, don't vote for this dangerous, unhinged con man.

Owen October 31, 2016

Somewhat agree BUT what about the long term deflation effects of a declining consumer base. That is, negative birth rates. Maybe it is better to lock in a smaller loss than a larger deflationary loss. The UN is saying that by 2075 all countries will have negative birth rates. Couple this with improved product quality via robotics and we no longer have an economic model that is based on the assumption that markets are always growing. Perhaps no one is recognizing that markets are in fact shrinking and the pace of contraction is growing. So what seems wrong for growing markets might actually be right for shrinking markets.

jimmie October 31, 2016

Larry....that was a very well written article. I don't want to be around to witness this event, as you and I know that it will be here soon enough. Even if you are on a deserted island, have gold and silver on hand, stockpiled food and water, have armed protection, or if you invested in the best investments. My concern is how long this event will last and how it will affect my family and friends. What have the elites done to our country and the world.

Dave October 31, 2016

Many pensions in Europe are required by law to invest in government bonds.

Yield Curve November 3, 2016

That's absolutely true.

Donald Minor October 31, 2016

Only a foolish dumbass would buy such bonds!

Donald Minor October 31, 2016

There is no shortage of fools who will buy such bonds. There is a shortage of smart people who understand long term investment!

gordon November 1, 2016

Yes governments are making hay while the sun shines selling Wimpy bonds.

bill conti November 1, 2016

I have several series EE savings bonds purchased in 1992. Should I be selling these now?

denny parks November 2, 2016

bill conti,did you get an answer to your series EE bonds?

F151 November 1, 2016

Yes....European bonds are a horrible bet. But how about all of the people investing in Illinois or California bonds?

wolf November 3, 2016

what about Canadian government bonds? are they no good as well?

Dan S November 5, 2016

Government debt in countries of Europe is bad but let's look at the mess our own United States Government has created here at home. With twenty trillion dollars of unfunded government debt and no inclination to stop the foolish spending we will take the big dive its only a matter of when. The public unions retirement account is under funded to the tune of, I believe, 3.5 trillion dollars. Several trillion dollars of U.S. Government Bonds is held by Social Security as IOU's never to be paid back. It's only paper and has no material value whatsoever unless you run out of toilet paper. Metals and produce are the only items which hold any tangible value, paper currency is worthless. I guess with plastic or digital currency being proposed, the IRS will get every penny is thinks it deserves. It has even less value than the present paper currency "harder to start the fire in the fireplace when it gets cold out". Forget the GDP this country is in grave trouble and I believe most people can sense it. Larry you're absolutely right Government Debt is definitely in reality a losing investment. Buy ammunition so you can defend what belongings you have and barter with the excess, this is true currency. Most important enjoy life its short in span and "Trumps" all other assets or concerns.

IZA November 5, 2016

The only way to survive colossal deficit spending is to trash all fiat currencies. Global inflation and a rush to own strategic commodity like gold, oil, uranium, and some rare metals. This is already happening in the Emerging Markets and eventually will hit the dollar and the euro.