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How Is That Austrian Century Bond Doing?

Summary:
I guess it depends on your entry price.   The Austrian 2117 bond chart now looks like a broken stock. We did notice during summer feeding frenzy and August highs, our bond trading buddies in Europe were pounding the table the loudest that every bond yield in the world was going to zero and beyond.   It’s always loudest at tops. The whole negative-yielding debt fiasco was generated by a ginormous momentum trade or a greater fool theory, coupled with momentum-driven algos with no context, a dearth of low-risk fixed income securities, and ambiguity of how a new round of QE would unfold in Europe. We wonder out loud if the proliferation of negative-yielding debt — trillion and counting — would be taking place if humans and not the bots and algos were still in control of the

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I guess it depends on your entry price.   The Austrian 2117 bond chart now looks like a broken stock.

We did notice during summer feeding frenzy and August highs, our bond trading buddies in Europe were pounding the table the loudest that every bond yield in the world was going to zero and beyond.   It’s always loudest at tops.

The whole negative-yielding debt fiasco was generated by a ginormous momentum trade or a greater fool theory, coupled with momentum-driven algos with no context, a dearth of low-risk fixed income securities, and ambiguity of how a new round of QE would unfold in Europe.

We wonder out loud if the proliferation of negative-yielding debt — $16 trillion and counting — would be taking place if humans and not the bots and algos were still in control of the markets?

Machines can go places where humans have never dared to venture as they have no context.  Algos in self-driving cars, for example, have no context and thus no ability to recognize a graffiti-ridden stop sign as a stop sign.

For all its impressive progress in mastering human tasks, artificial intelligence has an embarrassing secret: It’s surprisingly easy to fool. This could be a big problem as it takes on greater responsibility for people’s lives and livelihoods…

Indistinguishable changes to a stop sign could make computers in a self-driving car read it as “speed limit 80.”   – Bloomberg

How Is That Austrian Century Bond Doing?

No problem for a human driver even if the stop sign has more tags than a 95-year-old’s armpit.  – GMM, Aug ’19

Was the ECB going to be there to take you out of 10-year bunds yielding -2.0 percent?  That was the bet.

Keep in context the stock of negative-yielding debt is so much greater than the actual number of trades, which took place with negative yields.   Furthermore, negative yields are not equivalent to negative coupons.

Institutional investors may hold a large stock of negative-yielding bonds but how many negative-yielding bonds have they actually purchased?  Some, but probably not a whole helluva lot.

How Is That Austrian Century Bond Doing?

Gregor Samsa
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