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Edelson: Avoid All Government Bonds, Or Else

Tuesday, November 1, 2016 9:09
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(Before It's News)

BondsFrom Larry Edelson: 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.

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.

The iShares Barclays Aggregate Bond Fund (NYSE:AGG) fell $0.17 (-0.15%) to $110.92 per share in Tuesday morning trading. Year-to-date, the largest bond ETF in the world with over $42 billion in assets has gained 2.69%.

This article is brought to you courtesy of Money and Markets.

You are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)

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