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Big Short’ Investor Michael Burry Bets On Higher Inflation With A Slew Of Bets Against Treasury Bonds

Michael Burry bet against Elon Musk’s Tesla last quarter, and backed up his warnings of higher inflation with a slew of bets against Treasury bonds. Big Short’ Investor Michael Burry Bets On Higher Inflation With A Slew Of Bets Against Treasury Bonds

Updated: 6-14-2021

Don’t Discount Bond Vigilantes, Says Economist Who Named Them

The once-feared bond vigilantes have been quiet lately. In Wall Street lore, they’re the investors who take matters into their own hands when the government isn’t protecting the currency. If inflation rises, deficits grow, or a country’s creditworthiness is at risk, the bond vigilantes sell bonds en masse, pushing up interest rates sharply and forcing the government to get serious.

The vigilantes were nowhere to be seen on June 9, a day when interest rates went down instead of up. The yield on the 10-year Treasury note fell to 1.48% after having gotten as high as 1.74% at the end of March. That was in spite of economists’ predictions that on June 10, the Bureau of Labor Statistics would report that consumer prices rose 4.7% in the year through May.

Edward Harrison went so far as to write a June 9 article, “The Death of the U.S. Treasury Bond Vigilante,” for the Credit Writedowns newsletter, which he founded. “The bond markets aren’t intimidating anyone right now,” he wrote.


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Are the vigilantes really pushing up daisies? I put that question to economist Edward Yardeni, president of Yardeni Research Inc., who coined the term “bond vigilante” in 1983, when they were a force to be reckoned with. His short answer was no. His long answer was full of the kind of strong opinions you’d expect from a guy who’s been following the markets since receiving his doctorate in economics from Yale in 1976.

Here’s A Condensed Version Of What He Said:

* Their heyday was in the 1980s when we had four episodes where bond yields went up and subsequently nominal GDP went down. … As has been widely known, the Clinton administration feared the bond vigilantes. As a result it maintained a fair amount of fiscal discipline. We actually ran surpluses.

* Meanwhile along the way some very powerful anti-inflationary forces came into play. The need for them to be vigilant dissipated in 1990s through 2000s. Then we had the global financial crisis, a big increase in the deficit. They still remained quiet.

* The vigilantes rose up in Greece. In 2010-11 the sovereign bond yield rose to 40%. Draghi [former European Central Bank President Mario Draghi] calmed them down.

* Coming out of 2008, the central banks adopted unconventional monetary policy. They increased balance sheets. The bond market was no longer a market. The supply and demand for bonds was no longer being determined by free-market forces. Central banks, some would say, were rigging the bond market.

* Even if the vigilantes wanted to express an opinion, they were stymied by the actions of the central bank. Then again, there wasn’t much to complain about.

* The vigilantes may very well have come back from the dead starting last August. The Fed was buying all these notes and bonds, but the 10-year yield popped up to 1.7% earlier this year. Arguably somebody was selling while the Fed was doing all this buying, and they had enough clout to push the bond yield up. It had to be private investors.

* In March, MMT [Modern Monetary Theory, which is relaxed about budget deficits] was embraced by the Fed and the Treasury. You might as well put them in the same building and consolidate their statements.

I Asked Him If The Vigilantes Are Dead

* I don’t think they’re dead. Let’s see what happens tomorrow [with the inflation report]. Anecdotally my 22-year-old son walked into my home office. He just got a haircut. He said they raised the price from $20 to $26. When the barbers start raising prices, you have to worry about broad-based inflation.

* I’m sticking with my call of 2% [yield on 10-year Treasury notes] by yearend. Inflation is going to be a little bit longer-lasting than the markets are anticipating.

* It’s not as easy being a bond market vigilante now as it was in the 1980s. Then, the Fed didn’t intervene directly in the bond market. Give them even more credit for a valiant attempt to express an opinion when they’ve been gagged for so long by the central bank.

* In a free, competitive market, the price mechanism works. But this is not a free market.

* The longer the Fed keeps buying bonds, the more [potentially] powerful the bond market vigilantes are going to get because the compounding effect of higher rates on debt-service payments would be just a killer. We got a glimpse of that in 2017-18 when rates were going up.

Today, After The Government Reported That Consumer Prices Rose 5% In May, Yardeni Emailed Me This Paragraph:

* May’s higher-than-expected CPI report, like April’s, was dominated by base-effect increases in used car prices, car rental fees, hotel and motel charges, and airline fares. Over the next few months, I believe that we will see signs that inflationary pressures are more broad based reflecting higher labor costs. Furthermore, the jobless claims data suggest to me that payroll employment will be rising at a faster pace in coming months.

The Fed’s $120-billion-per-month of bond purchases has been flooding commercial banks with deposits that they’ve been forced to invest in Treasuries since loan demand is weak. Loan demand is weak because corporations raised a record $1.5 trillion in the bond market during the pandemic when the Fed backstopped the corporate bond market and yields fell to record lows.

The Fed has flooded the financial system with liquidity contributing to the demand shock and inflationary pressures, while keeping a lid on the bond yield around 1.50%-1.70% in recent months.

Updated: 6-14-2021

JPMorgan, TD Securities Urge Treasury Bears To Hold Firm

Despite a short squeeze that pushed benchmark Treasury yields to a three-month low last week, Wall Street sees plenty of reasons for bonds to sell off again.

Strategists at JPMorgan Chase & Co. turned bearish on 10-year Treasuries ahead of Wednesday’s Federal Reserve meeting, saying markets are now pricing in a too shallow rate-hike outlook. Their peers at Morgan Stanley are bracing for a hawkish surprise from the U.S. central bank and a team at TD Securities is also calling for a “tactical short” in benchmark bonds.

“Given rich valuations and a benign implied tightening pace, we turn bearish in 10-year Treasuries,” wrote a JPMorgan team including Jay Barry. “The pendulum has swung over the current quarter as Treasuries have moved from extremely cheap to extremely rich.”

Bond investors have been abandoning short bets in recent weeks on an expectation Fed officials will reaffirm that an ultra-loose policy remains appropriate, and that it’s too soon to start even considering tapering purchases of Treasuries and mortgage-backed securities. Still, officials could project interest-rate liftoff in 2023 amid faster economic growth and inflation, according to economists surveyed by Bloomberg — something the swap-market is pricing for April that year.

Ten-year yields rose one basis point to 1.46% 11:29 a.m. in London on Monday after hitting the lowest since March on Friday. That coincided with a key Fibonacci technical support level, stemming from the rise in yields from last year’s pandemic lows.

Fed Catalyst

While market expectations for the Fed to hike rates are more hawkish than the central bank’s own guidance, swaps are pricing in less than 100 basis points of tightening over the next four years, according to the JPMorgan strategists. That suggests markets see a relatively low pace of normalization, they said.

TD Securities see the potential for the central bank’s median “dot” for 2023 — a gauge of its expectations for rates that year — to move higher, according to a note from strategists including Priya Misra. That would likely surprise the market, which is priced for a dovish Fed, they said, calling for benchmark yields to bounce back to the 1.70% level.

Fed Dot Plot Seen Shifting To 2023 Rate Liftoff, Economists Say

The slump in Treasury yields after last week’s U.S. consumer-price data suggests markets are completely ignoring inflation as transitory, just when a case can be made for its sustainability, wrote Morgan Stanley’s head of U.S. interest rate strategy Guneet Dhingra in a note Friday.

“Given the shift in the mix of inflation from transitory towards sustainable, the risk of a hawkish tilt within the FOMC has increased, exposing the rates market to a hawkish surprise,” he said.

Updated: 6-18-2021

Michael Burry Warns Retail Traders About The ‘Mother of All Crashes’

The fund manager of ‘Big Short’ fame issued a stark series of tweets about cryptocurrencies and meme stocks.

Michael Burry, who became a household name after his winning bet against mortgages was featured in “The Big Short,” issued a series of tweets on Thursday warning individual investors about losses “the size of countries” in the event of crypto and meme-stock declines.

“All hype/speculation is doing is drawing in retail before the mother of all crashes,” Burry wrote on Twitter before the posts were deleted. “When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries. History ain’t changed.”

Burry, head of Scion Asset Management, is closely followed by the meme-stock crowd. He took a bullish stance on video-game retailer GameStop Corp. in 2019, which helped lay the foundations for an epic retail-investor frenzy earlier this year. His views have switched this year though, to warnings about dangers in the market.

“If I put $GME on your radar, and you did well, I’m genuinely happy for you,” he wrote in a tweet in January. “However, what is going on now — there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.”

Burry has a haphazard relationship with Twitter. He doesn’t post frequently from his account, but when he does his comments can be controversial. Last spring, he wrote on the social-media platform that lockdowns intended to contain the spread of Covid-19 were worse than the disease itself.

He has a habit of deleting his tweets soon after posting them. And earlier this year the investor told his followers that some of his Twitter activity had triggered a visit by the U.S. Securities and Exchange Commission.

Burry isn’t alone in his recent warnings about the cryptocurrency space. Mark Cuban, the billionaire owner of the Dallas Mavericks and an early crypto adopter, revealed to his Twitter followers this week that he’d been hit by the drop from roughly $60 to $0 of the DeFi Titanium token, part of a stablecoin project called Iron Finance.

“There should be regulation to define what a stable coin is and what collateralization is acceptable,” Cuban wrote to Bloomberg News in an email.

As for Burry, he has also placed a bet against Elon Musk’s Tesla Inc. Scion Asset Management owned bearish puts against 800,100 shares of the electric-car maker as of March 31, according to a regulatory filing.

Burry, who was played by Christian Bale in the film version of Michael Lewis’s best-selling account of the 2008 financial crisis, “The Big Short,” was originally a doctor. After gaining his M.D. at the Vanderbilt University School of Medicine, he was an early adopter of discussing stock trades on online message boards and switched to professional investing.

Updated: 9-28-2021

Inflation And Supply Shortages Are Waking Up The Bond Bears

Debt yields are rising, along with concerns about faster inflation.

Central bankers continue to insist that the recent price pressures that are driving inflation higher will prove temporary. But based on what’s happening to bond yields and in the inflation swaps market, investors are growing less convinced. Something’s got to give.

Supply chain disruptions, soaring energy prices and a rebound in consumer demand thanks to progress with vaccinations have conspired to bestir prices. Annual inflation is running at 5.3% in the U.S. and 3.2% in the U.K., and is forecast to have reached 3.3% in the euro zone. In all three regions, prices are rising at a pace way faster than the 2% central banks are supposed to target.

That’s awakened the animal spirits of the bond bears, who’ve driven benchmark yields higher in the past few weeks.

A Wild Month

Benchmark 10-Year Yields Have Surged In The Past Four Weeks

Ultimate Resource On Global Inflation And Rising Interest Rates (#GotBitcoin)  But the guardians of monetary stability remain unperturbed by prices rising higher. “These effects have been larger and longer-lasting than anticipated, but they will abate,” Federal Reserve Chairman Jerome Powell said in testimony to the Senate Banking Committee released Monday.

“Our view is that the price pressures will be transient,” Bank of England Governor Andrew Bailey said in a speech the same day.

“The key challenge is to ensure that we do not overreact to transitory supply shocks,” European Central Bank President Christine Lagarde said Tuesday.

While Their Persistence Can Be Debated, There’s No Question That Cost Constraints Are Widespread. A Few Examples:

* FedEx Corp. said last week that there’s been no easing of a labor shortage that’s driving up costs for the delivery company, with one sorting hub suffering understaffing of 35%.

* A survey by the U.K. Office for National Statistics showed 40% of Brits said there was less variety than usual in shops, with 25% saying they hadn’t been able to find non-essential foodstuffs and 18% saying they couldn’t buy essential food items.

* Costco Wholesale Corp. imposed rations on toilet paper, paper towels and cleaning supplies amid experiencing delivery delays.

* A.P. Moller-Maersk A/S has raised its profit guidance three times in five months. The world’s largest shipping line is on track to post annual earnings of $16.2 billion for 2021 — equal to its combined profit in the past nine years, Bloomberg News reported last week.

* Cotton, used in everything from jeans to T-shirts, is trading at its highest price in a decade.

* Nike Corp. said it used to take 40 days to ship sporting apparel across the world; now, that’s taking 80 days, with the rising cost of ocean freight hurting margins.

Consumers are most likely to feel the pinch in the supermarket, where inclement weather in one of the biggest crop growers is also contributing to higher prices. Brazil contributes four-fifths of the world’s orange juice exports, 50% of its sugar exports and 30% of its coffee exports. This year, the nation suffered its worst drought in a century, followed by freezing conditions that left farms shivering under blankets of frost that crippled crops, Bloomberg News reported this week.

That helps explain why the United Nations world food price index has climbed by a third in the past year, and why the cost of breakfast staples has surged in recent months.

Ultimate Resource On Global Inflation And Rising Interest Rates (#GotBitcoin)

In financial markets, a key set of gauges used by central bankers points to a further acceleration in prices. The five-year forward inflation swaps rates in dollars, sterling and euros have all surged this year, with the euro zone rate climbing to its highest in more than six years and the U.K. level reaching a decade high.

Perhaps the most troublesome aspect of the current economic environment is the risk that inflation is accelerating at the same time that growth is stumbling. The danger of stagflation seems to be making its way onto the collective radar of traders and investors; Bloomberg’s News Trends function, which can tally the occurrence of keywords from more than 1,500 sources, shows monthly usage of the term is at a record high.

Ultimate Resource On Global Inflation And Rising Interest Rates (#GotBitcoin)

Of course, fixed-income bears have been burned before. The years following the global financial crisis have seen repeated warnings that unprecedented economic stimulus would unleash inflation, only for prices to fail to rise and bond yields to continue to plumb new depths.

Time will tell who’s right this time — the central bankers insisting that the current increases in consumer prices are transitory, or the bond vigilantes seeing danger ahead.

Updated: 9-30-2021

In Bond Market Rout, Investors See Overdue Correction

Recent Fed meeting marked a turning point, as widely expected, with 10-year Treasury yield climbing above 1.5% in subsequent sessions.

Investors often claim the U.S. government bond market is the best place to look for insights into the shifting outlook for the economy and interest rates. Right now, some think it isn’t.

In the waning days of the third quarter, yields on U.S. government bonds shot higher. That might be taken as an encouraging sign about the prospects for the economy because yields, which rise when bond prices fall, generally tend to climb with forecasts for growth and inflation.

Many analysts, though, don’t believe that yields are rising now because much has changed about the economic trajectory. Rather, they see the bond selloff as an overdue correction to an overdone rally—the product of profit-taking more than a major shift in thinking.

The reason that yields rise matters because it can influence how investors respond in other markets. All else being equal, higher yields can hurt stock prices by lifting corporate borrowing costs and reducing the value of future earnings. But investors can also welcome them if they feel rising yields reflect an improving growth outlook.

In this case, investors have registered a mixed reaction. Most are optimistic about the economy, but their views haven’t changed much since last week, when yields were lower. Stocks have been volatile, first climbing when yields started rising, then falling sharply to start this week.

Many investors have been waiting for bonds to take a hit. After reaching a pandemic high of 1.749% on March 31, the 10-year yield dropped as low as 1.173% on Aug. 2 and remained safely below 1.4% until the end of last week. But even in August, many continued to believe that yields were unnaturally low and bound to snap higher.

“I don’t think there’s really anything particularly fundamental going on,” Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets, said on Aug. 2 when yields were tumbling.

Some investors, he said, were buying bonds while they still could, aware that prices would likely decline at some point but confident that they wouldn’t in the very near future. Others with longstanding short positions were inclined to sell but skittish after being burned by the rally.

Mr. Gwinn had guessed that momentum would only really shift after the Federal Reserve’s Sept. 21-22 meeting. Before resetting their positions, he said, investors were almost waiting for that meeting when the Fed would likely take a “tangible turn” to tighter monetary policy.

Seven weeks later, that is more or less what happened. The Fed on Sept. 22 signaled that it would likely start scaling back its purchases of Treasurys and mortgage-backed securities as soon as November. Officials also indicated that they could raise short-term interest rates sooner and faster than they had previously expected.

Neither development was shocking to investors, and yields were little changed right after the meeting. The next day, though, investors began dumping Treasurys, bringing the 10-year yield back above 1.5%, with the yield settling at 1.528% Thursday.

As the selling began on Sept. 23, Mark Lindbloom, a fixed-income portfolio manager at Western Asset, posited that people like him were driving it. That day, Mr. Lindbloom’s team had scaled back bets on the outperformance of longer-term Treasurys.

“Our portfolio position has benefited our clients,” he said, but it was time “to take some of that off, just to hedge our bets a little bit.”

Many analysts still ascribe at least some of the recent rise in yields to an actually improving economic outlook.

Recent months have featured some disappointing economic data, including a retail-sales report in August that came in well below expectations. In September, though, the same report, covering sales in August, was much more encouraging—suggesting the economy was weathering the rise in Covid-19 cases spurred by the highly contagious Delta variant.

Signs that the Delta wave might have peaked in the U.S. have also given investors hope that more workers will return to their offices, spurring additional economic gains, said Thanos Bardas, global co-head of investment grade and senior portfolio manager at Neuberger Berman.

There may be a limit to how high yields can climb from here. Many analysts in recent months have stuck to predictions that the 10-year yield could reach 1.75% or 2% by the end of the year. But their forecasts for yields beyond that point are constrained by longer-term trends.

Most important, even longer-term Treasury yields are generally dictated by expectations for short-term interest rates set by the Fed. But in recent decades, the central bank has been leaving its benchmark federal-funds rate progressively lower due to a variety of factors, possibly including a slowdown in potential economic growth, analysts said.

As it stands, the so-called neutral interest rate that neither stimulates nor slows the economy might be slightly below 2%, analysts at Cornerstone Macro estimated in a recent report. That suggests the central bank would have a hard time raising rates above that threshold, putting something of a soft cap on Treasury yields.

While investors may sometimes anticipate that the Fed might raise rates above the neutral level, “it’s very hard, mathematically, to contemplate, say, a 3% 10-year Treasury yield when the nominal neutral rate is below 2%,” they wrote.

Updated: 10-1-2021

Bond Investors Brace For Worst Year In Decades On Hawkish Fed

Global bond investors are facing their worst year at this point in more than two decades after a selloff in September triggered by hawkish statements from central bankers including Federal Reserve Chair Jerome Powell.

The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt, has lost 4.1 percent so far this year, the biggest slump for any such period since at least 1999. Comments last month from Powell that the Fed could start scaling back bond buying in November and a move closer by the Bank of England to raising rates triggered a surge in bond yields globally.

Big Short' Investor Michael Burry Bets On Higher Inflation With A Slew Of Bets Against Treasury Bonds

There were few places for fixed-income investors to hide in September as they moved quickly to price in less central bank support and the risk of higher inflation sparked by improving economies seeing fewer Covid-19 cases. High-yield indexes for U.S. and European corporate debt suffered their first monthly declines of 2021. The Bloomberg Global Aggregate Index lost 1.8% in September, its biggest drop since March.

Tough September

Monthly losses were the worst this year after reflation scourge in March.

While yields on the benchmark 10-year U.S. Treasury had by Friday retreated from their highest levels since June, markets remain positioned for more increases in the rates. Investor concerns are prevalent in global markets that central bankers are underestimating inflationary risks, as an energy crunch in countries including China pushes prices higher.

“We believe that the bias is for rates to continue to rise in October,” said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd.

The ability of Democrats in the U.S. to overcome rifts on President Joe Biden’s economic agenda, including a tax and spending plan totaling as much as $3.5 trillion, will also be key to how much higher rates go and how returns for bonds end the year.

House Speaker Nancy Pelosi sent lawmakers home Thursday night without voting on a $550 billion infrastructure bill, with plans to try again Friday after moderate and progressive Democrats failed to reach an agreement on the rest of Biden’s spending plans.

Higher rates aren’t the only concern for bond investors.

The debt crisis at developer China Evergrande Group has pushed losses on junk notes from China to 13% so far this year and dragged down emerging-market bond returns too. Gains for emerging-market dollar notes for 2021 to August were wiped out last month as markets convulsed.

Big Short' Investor Michael Burry Bets On Higher Inflation With A Slew Of Bets Against Treasury Bonds

“Until uncertainty surrounding Evergrande subsides, we do not expect a pronounced bounce-back in emerging-market corporate credit,” said Bank of Singapore’s Schubert.

Some are less bearish for bonds.

“Following a ‘mini tantrum’ in bonds, I expect a respite in October but not a sharp reversal lower in yields,” said Winson Phoon, head of fixed income research at Maybank Kim Eng Securities in Singapore. “Current rates pricing looks more reasonable and additional increases would require strong prints in economic data.”


Updated: 10-2-2021

The Market Is Right To Be Spooked by Rising Bond Yields

Shares are in trouble if the sharp rise in yields since last week’s Federal Reserve meeting is the start of a trend.

No one likes losing money, but Tuesday’s stock-price fall worries me more than the headline of a 2% fall in the S&P 500 should. In itself, 2% is no biggie: three days this year had bigger falls, and on average we have had seven worse days a year since 1964.

What bothers me is that the rise in bond yields that triggered the fall was really quite small, and there could easily be a lot more to come.

The 10-year Treasury yield rose only 0.05 percentage point, taking it above 1.5%, and the 30-year rose slightly more to just above 2%. If this is the sort of response we should expect, then get out your tin hat. Yields need to rise four times as much just to get back to where they were in March.

Why, you might reasonably ask, are stocks suddenly spooked by bond yields? In the boom up to March, stocks and yields marched higher together, and for the past two decades higher yields have generally been better for stocks. The difference is that investors see the central banks turning hawkish, even as economic growth slows, because they can’t ignore high inflation.

As Pascal Blanqué, chief investment officer at French fund manager Amundi, puts it, the fear is of a rise in rates driven by inflation alone pushing central banks to act, rather than a rise in rates driven by economic growth pushing central banks around. This is the mind-set that dominated investment until the late 1990s. If it sticks, it marks a profound change.

In the long run, it would mean bonds would no longer provide a cushion when stock prices drop, making portfolios more volatile. In the short term, if the sharp rise in yields since the Federal Reserve meeting last week is the start of a trend, then shares are in trouble. On the flip side, if yields come back down, it might be good for stocks—as it was on Friday—rather than bad, as has usually been the case for a couple of decades.

To see the threat, think back to the spring, when yields were marching higher. The outlook for inflation is about the same (investors are pricing it as high but temporary). The outlook for economic growth is worse, which provides less support for stocks generally. But central banks have shifted stance from super-easy for pretty much forever to start talking about tightening.

This is the wrong sort of rise in bond yields. When yields were rising up to their March high of 1.75% for the 10-year Treasury, stocks were on a tear because yields were being driven up by the prospect of higher economic growth, and so stronger profits.

Beaten-up value stocks and economically-sensitive sectors soared, while Big Tech and other growth stocks, plus the reliable earners known as quality stocks, went sideways. After March, falling yields boosted growth and quality stocks again, while value and cyclicals went sideways.

This time, stocks are reacting as they do when yields rise due to a central bank hawkish shift. Big Tech, other growth stocks and quality suffered the most, as their high valuations make them reliant on projected earnings far in the future; higher yields make these future earnings less attractive compared with owning super safe bonds.

But without the prospect of higher economic growth to boost earnings, cheap value and cyclical stocks also fell when yields rose, albeit by less than growth and quality.

There is huge uncertainty about the possible economic outcomes, so we shouldn’t just assume that this week’s trading pattern will continue. On the plus side, higher capital spending and the pandemic-driven adoption of technology might boost productivity more than worker shortages push up labor costs. This would damp inflation and accelerate growth.

A retreat of Covid-19 might ease pressure on manufacturing and switch spending back to services. On the down side, soaring energy costs and higher prices from widespread supply bottlenecks might hit households and weaken the economy further, even as inflation stays high—the dreaded stagflation scenario.

We should be even less confident about how central banks will react. I see twin triggers for the market’s reassessment. First, Fed policy makers upped their “dotplot” predictions for interest rates next year and the year after, along with inflation.

Second, the Bank of England, faced with an energy price crunch and higher-than-forecast inflation, warned of a possible rate rise before the end of this year. A slew of emerging-market central banks also raised rates, as did oil-producer Norway.

If the economy reacts badly to higher yields, though, the Fed and Bank of England might well shift back to uber-dovishness. The withdrawal of emergency government spending measures in much of the world will also give the doves a new reason to keep rates low.

Finally, there’s uncertainty about the market reaction itself. Maybe Tuesday’s bond moves were exacerbated by a combination of momentum selling and yields (which move in the opposite direction to prices) rising above the threshold of 1.5% on the 10-year and 2% on the 30-year. It might not be a coincidence that stocks did well on Friday once the 10-year dropped back below 1.5%.

Round numbers shouldn’t matter, but often do, while momentum is temporary. Tuesday’s move wasn’t driven by an event on the day, so perhaps the new narrative of hawkishness won’t stick. After all, it shouldn’t be that big a deal to withdraw some monetary support when inflation is more than double the target and policy has never been easier.

Given Big Tech’s outsize share of the overall market, investors in the S&P 500 need to be convinced that if bond yields are going to keep rising, it will be for the good reason of an accelerating economy, not the bad reason of sticky inflation pushing central banks to act.

Treasuries’ Pain Seen Deepening Amid Grimmest Year Since 2013

The Federal Reserve is doing its best to avoid the taper tantrum of 2013 as it moves toward curbing its bond buying. Ironically for Treasuries investors, 2021 could turn out to be even worse than eight years ago.

The latest bond selloff — triggered by a hawkish shift in the Fed’s signal on its policy path — has left the Bloomberg U.S. Treasury Index down 2.2% this year, on track for the first annual loss since 2013, when it declined 2.8%.

With key measures of inflation surging and coronavirus cases starting to ebb, investors and strategists from firms such as Societe Generale SA and UBS Group AG are bracing for more losses this quarter. Confidence in that view may only grow with the release of monthly jobs data next week, which is forecast to show hiring accelerated in September.

“It may not be a straight line higher, but there’s some catchup to do” for bond yields, said Leslie Falconio, head of U.S. fixed-income asset allocation at UBS Financial Services. “Our expectation is that consumer demand will recover from the setback” of the past few months, when the resurgent virus slowed economic momentum.

Falconio expects 10-year Treasury yields to rise to around 1.75% by year-end, around their peak for 2021. The yield reached about 1.57% this past week — the highest since June — before buyers started to nibble.

After several months of stability, global bond markets started to slump last month after central banks including in the U.S. and the U.K. signaled a move to reduce pandemic-era stimulus to head off inflation.

Traders boosted bets that the Fed will start raising rates late next year and lift them almost three times by the end of 2023. A power crunch across Europe and China is also keeping bond investors on edge.

There are plenty of forces that could limit a further selloff. Lawmakers are locked in a standoff over raising the U.S. debt ceiling, with the government weeks away from a possible default, in the estimate of the Treasury. And in China, growth is cooling amid a property-market slowdown and a power shortage.

But so far, international investors don’t seem to be swooping in with significant purchases, a dynamic that has capped Treasuries declines in the past.

The market is hardly anticipating a repeat of the rout eight years ago, when then-Fed Chairman Ben Bernanke triggered a surge in yields after he suggested the central bank could begin to reduce asset purchases. In that episode, 10-year yields jumped more than 100 basis points in four months.

Jobs Crossroads

But traders are now turning to the September labor report for the next potential catalyst for higher yields.

With the Fed all but teeing up November as the likely announcement of a plan to reduce its asset purchases, the payroll report Friday could ratify that view by offering fresh signs of broad economic strength. The median forecast of analysts surveyed by Bloomberg is for a gain of 470,000 jobs in September, double the previous month.

Investors have been tilting toward an extended selloff. A JPMorgan Chase & Co. survey showed that a net 25% of its clients were short Treasuries as of Monday, the most since early September.

“If we get a number close to the consensus, we see the potential for yields to rise in the back-end,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale, who predicts 10-year yields will rise to 1.7% by year-end.

Updated: 1-27-2022

Fed Should Sell Bonds, Not Just Let Them Roll Off, Pozsar Says

* Credit Suisse Strategist Says That Would Give Fed More Control
* Comment Follows Release Of Principles By Monetary Authority

The Federal Reserve should look to reduce its balance sheet through outright sales of bonds rather than merely by allowing its holdings to mature as the central bank has indicated it plans to do, according to Credit Suisse Group AG strategist Zoltan Pozsar.

Doing outright asset sales would allow the monetary authority to target specific parts of the yield curve rather than leaving it at the mercy of how the Treasury chooses to refinance the securities rolling off, in his view.

That “makes more sense in the current environment,” Pozsar says, noting that because the Fed is looking to use so-called quantitative tightening to alter inflation and financial conditions, it should be the central bank controlling which sectors of the curve get hit.

A set of principles released with the most recent Fed policy decision, however, showed that for now at least the Fed is looking to embrace the broad model it used last time it engaged in QT back in 2017-2019.

Back then, it set monthly limits to how much it would allow to roll off without being replaced by other securities and on Wednesday it signaled that it intends to proceed in a similar predictable manner.

Officials did say, nevertheless, that they are prepared to adjust any of the details of its approach in light of economic and financial developments.

“Never say never, and keep an open mind,” wrote Pozsar in a Jan. 27 note, saying that the Fed did tweak its approach last time around on QT and that concerns about yield curve inversion have the potential to spur a rethink down the line.

“Maybe curve inversion will soon become an issue this time around if Treasury doesn’t issue enough long-term debt, and the Fed may have to change tack again to have more control about the amount of duration that enters the system via QT.”


Updated: 1-31-2022

Hedge-Fund Trade That Upended The Treasury Market Is Set To Return

* Relative-Value Opportunities Emerge As Fed Shrinks Footprint
* Older Treasury Notes And Bonds Have Seen Some Value Erode

A money-making strategy formerly popular among hedge funds stands to make a comeback as the Federal Reserve plots to shrink its footprint in the U.S. Treasury market.

The strategy involves taking leveraged positions in Treasury notes and bonds in order to exploit price differences with the corresponding futures contracts. These so-called basis trades backfired during the March 2020 liquidity crisis, when the normal relationships between cash and futures broke down.

Since then, the Fed’s massive buying of Treasury notes and bonds has stripped the volatility out of the cash-futures relationship, while also bidding up the value of the older Treasuries normally used in basis trades.

With the Fed planning to wind down its buying of Treasuries by March and possibly to start shedding its holdings by attrition later this year, arbitrage opportunities may be set to return, Citigroup Inc. strategists Raghav Datla and Jason Williams said in a note late Friday.

The policy shift “should remove the dampening effect that Fed purchases had on the futures net-basis” and yield relationships between older and new Treasuries, they wrote. Also, financing rates for Treasuries should rise “and drive more dislocations in cash/futures markets.”

Since the start of the year, the yield differential between the newest 10-year note maturing in November 2031 and the second-newest, maturing three months earlier in August 2031, has shrunk. The older note’s yield is lower, but by a smaller margin than previously.

That trend should continue as the increased supply of Treasuries in private hands leads to higher financing rates, the Citi strategists said.

As for the futures basis, it remains depressed for now despite strong investor demand for Treasury futures. The latest weekly data from the Commodity Futures Trading Commission show asset managers were net long almost 1.5 million five-year note contracts, near the highest level of the past two years.

Updated: 2-14-2022

Goldman Sees A Big Change Coming To The Bond Market

And it could be bad news for stocks.

It’s no secret that bonds spent much of the past year acting seemingly immune to inflation concerns.

Persistently low yields have perplexed market watchers, with some likening them to the infamous “Greenspan conundrum” that plagued the Federal Reserve when it was raising interest rates in the mid-2000s.

In one view, low yields are an ominous signal for future economic growth. In another, they reflect a change in the market’s ownership, with a greater proportion of U.S. government debt locked up by the Fed or by price-insensitive banks in general.

Whatever the reason, you can see just how ‘resilient’ yields have been in the below chart from Goldman Sachs Group Inc. economists led by Jan Hatzius.

They note that in 2021, the average move in the benchmark 10-year U.S. Treasury security has been just 24% of its long-term average, citing the standard-deviation measure during data surprises. In other words, bond yields haven’t been reacting very much to big shifts in U.S. economic data.

As Hatzius & Co. Write:

“While bond market sensitivity to inflation data has picked up to above-normal, it remains lower than in 2018 and just one-third as large as it was in the late 1970s and early 1980s. These lower-than-warranted sensitivities may be one reason financial conditions haven’t tightened very much in response to this year’s inflation and policy surprises.”

But they argue, that could all be about to change.

The bond market’s sensitivity to growth surprises should increase as we move into an era of higher inflation and interest rates, they say. That would eventually feed into financial conditions and potentially impact growth.

“We see scope for increased data sensitivity that could in turn catalyze additional Financial Conditions Index tightening — particularly if inflation remains stronger-than-expected or if growth concerns return,” they write.

In fact, there’s already some evidence that’s already happening. Over the past few years, bond yields would typically retrace some of their moves on days when the Consumer Price Index was released.

But now, 10-year yields are basically doubling down on their CPI reactions and typically moving another 0.6 basis points up or down depending on the nature of the inflation surprises. Yields on the two-year are doing the same thing.

It’s worth noting here that last week’s higher-than-expected inflation numbers already kicked off some big moves in bond yields, with the 10-year rising above 2% for the first time since 2019 and the two-year jumping more than 20 basis points in its biggest intraday move since 2009.

And while it would be easy to argue that this is all about bonds, it’s not hard to see how this could impact stocks given that Treasuries act as the risk-free rate off which a variety of risk assets are priced. That’s one reason why Goldman just lowered its year-end price target for the S&P 500 from 5,100 to 4,900.

Per Goldman:

“Some risk assets appear to be “having their cake and eating it too”: discounting a benign economic environment but not the funds rate adjustments needed to arrive there. After all, if some of the flatter yield curve reflects rising growth risks, then equities should embed a larger risk premium—and a lower expected value of earnings.

Our equity strategists have lowered their price targets, and our credit strategists continue to forecast rising risk premia.”

Updated: 2-15-2022

Treasury Market Liquidity Is Eroding With Fed’s Course A Gamble

* Gauge Of Dislocations Is Approaching Last Year’s High
* Market Depth Is Worse In Short-Dated Than Intermediate Tenors

Liquidity is eroding in the U.S. Treasury market again, as the past week’s controversy about how much and how quickly the Federal Reserve will raise interest rates this year unleashed a bout of extreme volatility in yields.

The Bloomberg U.S. Government Securities Liquidity Index — a gauge of deviations in yields from a fair-value model — is approaching last year’s highs, reached in early November. At that time, expectations for Fed hikes had begun to mount in October, causing historically large daily swings in short-dated Treasury yields in particular.

In the latest iteration, the prospect that the central bank — which normally changes its policy rate in quarter-percentage-point increments — might consider a half-point rate increase in March spurred the two-year note’s yield to rise 21 basis points on Feb. 10, its biggest increase since 2009.

The same day a gauge of expected volatility in U.S. rates over the next 12 months reached the highest level since May 2010, a period of spectacular volatility in U.S. stocks.

“Any true depth of liquidity is low,” Peter Tchir, head of macro strategy at Academy Securities, said in a panel discussion on the Bloomberg TOPLive Blog Tuesday. In Treasuries, older securities “are trading very poorly, a sign of that lack of liquidity.”

“As volatility has picked up, market depth has fallen,” JPMorgan Chase & Co. U.S. interest-rate strategists led by Jay Barry said in a Feb. 11 note. The “softer Treasury market liquidity acted as an accelerant in the latest moves,” they said.

Market depth — derived from the sizes of the top three bids and offers on the BrokerTec trading system between 8:30 a.m. and 10:30 a.m. in New York — is depressed for all Treasury tenors, and worse for two-year notes than for the five- and 10-year.

With short positions anticipating higher yields elevated and continuing to grow, liquidity will be essential to avert a dramatic repricing lower in yield in the event of a reversal in sentiment that drives investors out of those positions.

Updated: 3-21-2022

Battered Bond Bulls Send Record Cash To Giant Treasury ETF

* TLT Took In More Than $1.6 Billion In Biggest Inflow Ever
* Investors Are Using The Selloff To Buy TLT: UBS’s Falconio

A scorching selloff in Treasuries just propelled a record wave of dip-buying in an exchange-traded fund tracking the longest-dated bonds.

Investors poured more than $1.6 billion into the nearly $19 billion iShares 20+ Year Treasury bond ETF (ticker TLT) on Friday, according to Bloomberg data. That’s the biggest one-day influx since its 2002 launch. The fund’s price has dropped more than 11% this year, despite Friday’s 1.2% rally.

Treasury yields have shot higher across in the curve in 2022 as the Federal Reserve dialed up expectations for higher interest rates to tamp down on soaring inflation. While the most dramatic moves have taken place in short-dated securities — the tenors most sensitive to policy expectations — rates on longer-dated bonds have also climbed to pre-pandemic highs in the span of a few months.

These long-term bonds will likely continue to cheapen, and their yields will rise, as the central bank reduces its debt holdings this year.

But with hawkish monetary moves increasingly priced in, investors fading the selloff have good reasons to buy TLT, according to Leslie Falconio of UBS Financial Services.

“Now that the Fed has become fairly aggressive, there is a normalization of the yield curve so I do understand why people really would want to stop and take on some interest-rate risk at the levels,” Falconio, the firm’s head of U.S. fixed-income asset allocation, said in a Bloomberg Television interview.

Longer-dated yields are also being pushed higher with the prospect of more corporate debt sales, such as GlaxoSmithKline Plc’s seven-part deal. The 30-year rate climbed to just shy of the peak seen last week after the Fed raised rates.

The uncertainty over the war’s impact on economic growth could also explain the mega-flow into TLT, according to Bloomberg Intelligence’s Eric Balchunas. A less-robust expansion of the economy supports longer-dated debt, and might prompt the Fed to dial-back some of its tightening plans after policy makers signaled they expect to raise rates six more times this year, he said.

Updated: 3-25-2022

The Bond Market Losing $2.6 Trillion Is Actually Good News

For the vast majority of fixed-income investors, the opportunity to capture higher yields offsets any unrealized losses.

The Bloomberg Global Aggregate Index, a benchmark for the bond market worldwide, has tumbled 11% from its peak in January 2021, equating to a drop of $2.6 trillion in the index’s market value.

Bloomberg News describes this as an unprecedented loss in the long history of the bond market. Big capital losses are always bad news in the stock market, but in the bond market can be welcome news for most.

One important reason is lower bond prices mean higher bond yields. Investors who hold bonds for income are pleased when their prices fall, because those bonds continue paying the same income as before.

Plus, the new bonds they purchase as older ones mature pay higher income. Investors who hold bonds for capital appreciation need to look at their portfolio duration, which is 7.35 years for the Bloomberg Global Aggregate Index.

What this means is that investors who care about total return are happy when bond prices decline if they expect to be in bonds for more than 7.35 years, because the additional yield their earn in the future more than offsets the immediate capital loss. On the flipside, they are unhappy if they expect to remove bonds from their portfolio sooner than 7.35 years.

The vast majority of bond investors are either income investors or expect to be in bonds indefinitely. The exceptions are those using bonds as a moderate-risk investment saving for medium-term expenses, such as college or a down payment on a house, and market timers who get in and out of bonds for short-term capital gains.

I have no idea how much the latter group represents of the $2.6 trillion, but I’ll throw out $100 billion as a guess as good as any other. If so, the other $2.5 trillion represents investors happy about the loss.

And if you weren’t in bonds up to now, but are scared due to the losses, you’re thinking backwards. You can enjoy all the benefits of higher yields without having to suffer the capital loss borne by existing bond investors.

There’s more good news. The $2.6 trillion is a theoretical calculation for U.S. dollar-based investors who track the global index without a currency hedge. Most of the loss came from an appreciation in the dollar against the currencies of the non-U.S. bonds in the index.

Since the August peak of the index, the dollar is up almost 8% versus the euro and 6% versus a basket of currencies weighted by share of the index. Investors who hold hedged versions of the index, or non-U.S. investors, lost about 5%, rather than the 11% of unhedged dollar-based investors.

Think about what it means for a U.S. investor who holds unhedged foreign bonds if the dollar strengthens. A stronger dollar means the investor’s dollar-based wage and other investment income buys more on global markets.

It also reduces expectations of future inflation, because a stronger dollar means cheaper imports, which puts downward price pressure on domestic producers as well. That makes all dollars, and all dollar-based nominal investments, more valuable in terms of purchasing power.

Against those gains, the investor will lose because the income from foreign bonds — unchanged in nominal terms — will buy fewer dollars. However, unless a dollar-based investor has a massively unbalanced portfolio tilted toward unhedged foreign bonds, the gains from a stronger dollar are likely larger than the losses.

So, the investors suffering the full 11% nominal loss from the index decline are likely better off overall as a result.

Finally, we can’t talk about bonds without mentioning inflation. Much of the decline in the Bloomberg Global Aggregate Index was caused by rising yields on U.S. Treasury securities as inflation accelerated. The yield on the seven-year note, for example, rose from 0.95% in August to a recent 2.36%, an increase of 1.41 percentage points.

Yields in Europe and other developed economies also increased, but not as much as in the U.S. But the rate on Treasury Inflation-Protected Securities is up only 0.81 percentage point, and that’s a better gauge of the real rate of return investors can expect to earn. Much of the decline in nominal price of bonds is offset by reduced expectations of future inflation.

Of course, that still leaves bond investors with a significant loss in value. But most investors expect —and market indicators such as breakeven rates on bonds corroborate — that the recent and expected future rate increases by the Federal Reserve will bring slow inflation to the long-term benefit of bondholders.

There is a nightmare scenario for bonds in which the Fed cannot control inflation, leading to steep price declines in bonds and sharply reduced purchasing power of the income generated by bonds. But this is a feared future loss, not the past loss. And if you fear it, unhedged foreign bonds are an attractive option, as perhaps other countries’ central banks will be more successful than the Fed.

Bondholders as a group should celebrate the $2.6 trillion loss — and wish for more.


Updated: 3-31-2022

Bond Market Suffers Worst Quarter In Decades

Rout has robbed investors of traditional haven as stocks and many other markets swing sharply.

U.S. bonds’ worst quarter in more than 40 years has come to a close. The question for many investors now is whether it is time to buy the biggest dip in recent memory.

The Bloomberg U.S. Aggregate bond index—largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities—returned minus 6% in 2022 through Wednesday, on track for the biggest quarterly loss since 1980.

Yields on short to medium-term Treasurys—which rise when their prices fall—have logged their biggest quarterly gains in decades, with the two-year yield rising the most since 1984 and the five-year yield the most since 1987.

The poor performance of bonds has robbed investors of a traditional haven at a time when stocks and many other markets have been swinging sharply, thanks to factors including the Federal Reserve’s first interest-rate increase since 2018 and the war in Ukraine.

Yields on Treasurys largely reflect expectations for what short-term interest rates will average over the life of a given bond. Investors dramatically increased those expectations over the past three months—driving bond prices down and yields up—thanks to a run of high inflation readings and Fed officials sounding ever more concerned about that data.

Over the longer term, higher rates could slow inflation and possibly even drive the U.S. economy into recession, which would be better for bonds than most other assets. Meanwhile, however, some analysts warn that rate expectations could keep heading higher, driving further losses for bonds.

Tom Graff, head of fixed income and portfolio manager at Brown Advisory, said he generally doesn’t expect much more gains in longer-term yields. Shorter-term yields, he said, could easily climb further as the Fed keeps raising its interest-rate forecasts.

“A lot of money has been lost in the bond-trading world betting on Fed peak hawkishness,” he added.

As it stands, interest-rate derivatives show that investors now expect short-term rates to reach 3% next year—up from less than 0.5% now and near zero before the Fed’s recent move.

Still, investors also expect rates to come back down quickly after reaching that level. Embedded in that view is a continued belief that inflation—now running at a 40-year high at 7.9% by one measure—will subside largely on its own as businesses increase the supply of goods and consumer spending slows due to the fading effects of emergency government-spending programs.

Many investors also doubt the economy can handle 3% interest rates without slowing significantly.

As a result, yields on some shorter-term Treasurys, such as the three-year note, have edged above those of longer-term bonds like the 10-year note—creating what is known on Wall Street as a flat or inverted yield curve.

By contrast, some economists on and off Wall Street have argued that rates are likely to go much higher than 3% because nothing less will be able to fix the inflation problem.

The yield on benchmark 10-year U.S. Treasury note settled Thursday at 2.324%, up from 1.496% at the end of last year and the record closing low of 0.501% early in the pandemic when investors thought it would take many years before the Fed would raise interest rates again.

Unfortunately for fund managers, the longer they waited to adjust their expectations, the more painful it became to do so.

In general, slowly rising bond yields are a “fantastic environment for bond investors” because it allows managers to use the cash flow from interest and principal payments to buy new bonds with higher yields, said Vishal Khanduja, fixed-income portfolio manager at Morgan Stanley Investment Management.

However, a large rise in yields—and drop in prices—over just a few months makes it impossible to absorb losses that way.

Updated: 4-4-2022

The World Is Piling On Debt As It Battles Inflation

Government handouts can help keep fuel and food price protests in check, but may be too much to bear for financially fragile countries.

A surge in food and fuel prices is raising pressure on governments around the world to pick up the tab for consumers, stretching precarious public finances and intensifying political instability in the shakiest economies.

Spooked by protests that have broken out recently from Bangkok to Sicily, many governments have adopted subsidies or tax breaks to shield households and businesses from the soaring prices.

Yet the handouts are boosting already high government debt just as borrowing costs are rising. For some countries, the increase may prove too much to afford, raising the specter of political unrest.

Subsidies “might support consumer confidence in the short term, but they also prevent healthy adjustments in the economy,” deterring companies and consumers from adjusting to economic shifts, said Joerg Kraemer, chief economist at Commerzbank in Frankfurt.

In Europe, Russia’s attack on Ukraine saw gasoline and diesel prices make their biggest jumps since the oil shocks of the 1970s against a backdrop of already rampant inflation. After chafing under Covid-19 restrictions, Europeans are now protesting over their dwindling purchasing power.

Greek farmers in mid-March drove their tractors to the Agriculture Ministry in Athens to demand relief. In Sicily, protesting truckers disrupted food deliveries, including those of the island’s famous oranges. In Spain, striking truck drivers caused food shortages in some areas and prompted companies like Danone SA and Heineken NV to warn of production cuts.

Inditex SA, the Spanish apparel maker behind Zara, said the strike could delay getting products to stores. Inflation in Spain rose to 9.8% in March, according to preliminary figures released last week, the highest level since 1985.

In mid-March, France staved off a similar strike with a €400 million relief package, equivalent to $442 million, that includes direct payments to truckers. In Spain, strikers have rejected a proposed €500 million government aid package as too small. Germany recently unveiled cash payments to taxpayers, heavily discounted public transport tickets and a temporary price cap on gasoline and diesel.

All this extra expenditure tops three years of surging pandemic-related public spending. Governments in the 19-nation eurozone are likely to run budget deficits of around 4.5% of GDP on average this year in part due to new subsidies, according to Capital Economics.

Many economists say subsidies are often politically difficult to withdraw when they have outlived their purpose. The International Monetary Fund has said they tend to benefit richer households that consume more energy.

Gas and oil subsidies could also undermine a planned shift away from fossil fuels. Global fossil fuel subsidies were already worth about $6 trillion or 7% of global output in 2021, according to the IMF.

For emerging markets in particular, the cost of often depleted public coffers is also an issue. Emerging economies must refinance debt worth about $7 trillion this year, up from $5.5 trillion in 2021.

Across Africa, governments struggling to recover from Covid-induced recessions have retained or reintroduced subsidies and tax breaks, threatening to worsen the continent’s debt crisis. With food and fuel prices now surging again, many African nations are caught in the middle, unraveling efforts to repair the havoc wrought by the coronavirus pandemic.

In Nigeria authorities have suspended long-touted plans to scrap gas subsidies, while the government in Zambia is expanding subsidies on fertilizers to support corn farmers, threatening the highly indebted nation’s promises to rein in soaring external debt.

After public protests, Kenya, east Africa’s largest economy, said new subsidies to help poor households. It now plans to spend more than $500 million in the next two years to ease spiraling costs, according to the treasury.

“We are being humiliated by the state of the economy,” said Isaac Kitao, a Kenyan bus owner on national television last week. “Fuel prices are very high and we cannot raise the fares. We don’t understand what’s happening because the government had told us that they wanted to subsidize the cost of fuel to make it affordable.”

Egypt, the world’s largest wheat importer, normally buys 70% of its grain from Ukraine and Russia. Rising flour and fuel prices have increased government expenses by about $1 billion, prompting it to regulate prices of non-subsidized bread. After food protests in parts of Iraq, the government began providing flour and oil from its strategic reserve, which are now nearly depleted.

Lebanon’s government earlier this month limited its provision of subsidized food products. It ordered mills to exclusively provide flour intended for producing local, pita-like Arabic bread until the country can secure more grain and wheat shipments from abroad, according to a statement by the Lebanon Mills Association. Since then, the price of flour has skyrocketed, bakers said.

“They are making it too expensive for us,” said Mohammad Fakhani, the owner of several bakeries and dessert shops in Beirut. “The price of a bag of flour keeps multiplying, it’s like fiction.”

Economists say Asian economies are in better shape to weather the inflationary shock from the war than they were in previous crises, with sounder public finances and reduced reliance on foreign capital. Some, such as Malaysia and Indonesia, are net exporters of commodities. Higher revenues from these exports could help finance subsidies without blowing big holes in their budgets, economists say.

In China, consumers are partially shielded from rising oil prices by regulated retail gasoline prices. If oil prices keep climbing, state-owned refineries will shoulder a disproportionate share of the extra cost, said Zhu Haibin, chief China economist at J.P. Morgan Chase.

In India, the government has budgeted about $40 billion for a food and fertilizer subsidy program for the fiscal year through March 2023, aimed at supporting consumers and farmers.

Surging prices mean the bill for the treasury could rise to between 1.0% to 1.5% of national income, said Andrew Wood, a director in S&P Global Ratings’ sovereign ratings team, making it more difficult for the government to meet its goal of narrowing its budget deficit to 6.4% of gross domestic product from 6.9% this fiscal year.

In Pakistan, Prime Minister Imran Khan in late February said a subsidy worth more than $1.5 billion on gasoline, diesel and electricity. Mr. Khan had recently seen his popularity dented by rampant inflation, prompting an attempt by the opposition to topple his government.

Such was the perceived urgency, that Mr. Khan said the subsidy without prior agreement from the IMF, which has been pressing Pakistan to remove subsidies in many sectors. The government and the lender are now in talks over whether Pakistan’s IMF program can continue.

Some low- and middle-income countries that export commodities in addition to importing food and fuel are better positioned as rising export revenues can help to offset rising import prices.

In Argentina, the IMF said the country’s ability to comply with a new program to refinance $44 billion in debt is facing exceptionally high risks due to the impact of the war in Ukraine. The program calls for reducing costly energy subsidies, which economists say will become politically more difficult as oil prices soar.

While higher grain prices could boost Argentina’s exports, households are also facing rising grocery bills in a country where about 40% of the population lives in poverty and inflation is above 50%. Earlier this month, Argentina said farmers would have to divert 800,000 tons of wheat to the domestic market to guarantee local supply and keep prices down for staples like pasta and flour.

Updated: 4-4-2022

Podcast: How Bill Gross Built A Bond Empire—Then Lost It All

Points Of Interest In The Pod:

On Ginnie Mae Futures, One Of Pimco’s Most Interesting Trades — 05:25
On The Role Of Pimco’s Size In Its Success — 09:13
What Made Pimco Successful — 10:36
Whether Gross Failed To Adapt — 11:42
On Pimco’s Cash-Equivalents — 13:30, 16:56)
Why Gross Didn’t Make More In 2008 — 14:12
On Bill Gross As A Manager — 20:28
On Reporting Out The Book — 23:04
What Drives Gross, Plus Bonuses — 26:42
How Wall Street Values Portfolio Managers — 33:48
Pat Fisher And The Role Of Women At Pimco — 35:53
What Pimco Is Like Right Now — 39:35
What Bill Gross Is Doing Right Now — 41:41
On Bill Gross’s Investing Legacy — 43:30

Tracy Alloway: (01:09)
Hello, and welcome to another episode of the Odd Lots podcast. I’m Tracy Alloway. My co-host Joe Weisenthal is away. However, I have a replacement co-host for this very special episode, we’re going to be joined by Matt Levine. He is of course, a columnist over at Bloomberg Opinion. Matt, welcome to the show.

Matt Levine: (01:28)
Thanks for having me.

Tracy: (01:30)
So I have been covering bond markets for many, many years now. And when you’re covering bond markets, it feels like at one point in time, there was no as scape from a certain bond investor. And that was a guy called Bill Gross. If you were covering bond markets at one point or another, your path would cross with Bill Gross’s in some way. It was either something he was doing or something that he had said that you would inevitably have to write up. And I don’t know if you feel the same way Matt?

Matt: (02:06)
Oh yeah. I mean, in particular he would write these monthly investment outlooks that were always both widely covered because they were the outlook of an important bond investor about the bond market. But also because he began them with embarrassing personal anecdotes and you’d read them and be like, did this professional investor really just say that? And every, every month he would top himself.

Tracy: (02:28)
This guy in charge of Billions of dollars worth of people’s money, did he actually just write several hundred words about his cat and things like that?

Matt: (02:36)
His cat watching him in the shower, I think was the classic.

Tracy: (02:39)
Yeah. Okay. So Bill Gross loomed large in financial journalist imaginations and over the bond market. And then of course we all remember in 2014 when he actually left the company that he had founded, which is Pimco and that just exploded into the headlines. You remember that?

Matt: (02:59)
Oh yeah. He went to Janus, which I think to this day remains a joke on Financial Twitter. When anyone leaves a job, they, we say that they went to Janus.

Tracy: (03:07)
That’s [laughing], sorry. That’s exactly right. Okay. So when Bill Gross left Pimco, there were all these questions swirling around both the man and the strategy and the company. And I remember writing at the time that there were still all these unanswered questions around who Bill Gross was, what he was actually doing at Pimco. And I guess someone stepped up to try to answer all those questions. And I am very, very pleased to say that today we are going to be speaking with Mary Childs. She is of course the co-host of NPR’s Planet Money podcast, and also the author of a new book. It’s called “The Bond King: How One Man Made a Market, Built an Empire and Lost It All.” And it’s been many years in the making and I’m thrilled to have her on the show. So Mary, welcome to Odd Lots!

Mary: (04:00)
Thank you so much for having me. I’m excited to be here.

Tracy: (04:03)
So one of the things that always struck me about Bill Gross, and maybe this is why, you know, you sort of took an interest in the story, but when people think about bond investing, they normally think about, well, you buy a bond and you hold it to maturity and it’s really boring. But the thing about Bill Gross, and you go into this in some detail in your book, is that he was doing really complex things in the fixed income world. You know, his funds were full of derivatives, full of futures, swaps, lots of repo transactions, things that you wouldn’t necessarily think of when about traditional plain vanilla bond investing.

Mary: (04:43)
Definitely. And you’re exactly right. That’s one of the main reasons why I got interested in this in the first place. I feel like there is this misconception that, oh, my bond fund is managed by like some dork in Boston who doesn’t do bananas stuff. And that’s just kind of not the case, you know? So many of our retirement dollars do go to Pimco and end up doing very exciting things. And yeah, there’s so much room to look into, you know, what Bill did and the kind of extremely complicated trades that he put on and the trade structures that I just find it really kind of, it’s interesting, both because of that misconception, but also just by virtue of being really elaborate and smart and fun trades.

Matt: (05:25)
So one of the most fun trades, and I feel like we could spend the whole Odd Lots on this because it’s like very Odd Lots-y — in like the mid eighties, he did this trade on Ginnie Mae futures that basically broke that market forever. Can you describe that in enormous detail for the Odd Lots listeners? I know my audience.

Mary: (05:44)
Yeah. This is my favorite trade. Basically there was this futures contract that, I think was, you know, extremely popular in like 1980-ish and people were trading it with a lot of assumptions. You know, the mortgage market’s gnarly, very few people feel like they actually like can get into the particulars and the details. And then kind of expand that into the way these things should be traded perfectly, like a lot of people trade on models that they got from someone else or whatever. And I think in this case, Pimco just really read into the details of  the contract, you know, they heard that it was flawed, but they read into it and they were like, wait, this is really flawed. There were two kind of separate parts of it. Two trades basically where one trade relied on the ability to demand physical delivery and one trade relied on the fact that this contract had the option for a perpetual. So you could ask for it to be converted into a perpetual security that paid you 8% forever.

Matt: (06:41)
Why did it have that? That makes no sense.

Mary: (06:44)
I know. So I tried to talk to the guy who built the contract and he was kind of like, ‘No, it’s a great one. Love that one. Bye.’ Which I understand. But I think, you know, they were trying to make it attractive and rates were high at the time. So I think there was some sense of like trying to entice people to play in this market in the first place, because again, mortgages were pretty poorly understood. I mean, there is a real explanation, but also they were still figuring stuff out, you know, like these were new contracts and this is kind of a new frontier. So trying to find out what would work. It was a little bit of trial and error.

Tracy: (07:16)
So what exactly did Pimco do in this situation? So you have this new contract and this seems to be a bit of a hallmark of Pimco’s strategy at that time, but they actually read all the terms, did all their due diligence and research, and basically figured out a way to make lots of money out of it.

Mary: (07:35)
That’s exactly right. So they basically realized that the market was, you know, trying to account for the negative convexity of mortgage-backed securities that, you know, would show up in these Ginnie Mae bundles. But what they weren’t accounting for was the kind of optionality and the fact that if you accrued enough of the underlying, the cheapest to deliver, there just weren’t that many in the world and rates had started to go down. So there were gonna be fewer and few, right? So Pimco realized this kind of before anyone else, and they amassed a huge position in these contracts. And then they demanded physical settlement of the futures, which is to say, they were like, give me your cheapest to deliver Ginnie Maes.

Tracy: (08:10)
Right. And they didn’t have to demand physical settlement, right? They could have just let the futures roll off?

Mary: (08:15)
Exactly. And that was what everyone kind of expected everyone else to do. So part of what they were playing with here is expectation, is everyone else’s normal behavior. And Pimco seems to always find that there’s just a little bit extra performance if you don’t act normal.

Matt: (08:28)
The trade is just like, these futures are priced assuming that you deliver the cheapest to deliver security. And they bought so many futures that they sort of at stripped the cheapest to deliver and like they were getting much more valuable securities.

Mary: (08:42)
That’s exactly right. So yeah, they would go to these people, you know, the counterparties and say, give me your, you know, I’m settling now. Please give me all of the, you know, cheapest to deliver that you have. And the counterparty would be like, oh, we don’t have enough. You have more than we can satisfy. And they would have to hand over much more valuable Ginnie Maes just to satisfy the delivery, the settlement. So basically, yeah, Pimco was able to outsize the market, which is actually something that you’ll see later. You know, they do this trade in different kind of flavors over the years.

Tracy: (09:13)
So this is something that I’ve been thinking about a lot. And I’ve thought about a lot over the years, you know, I said earlier that Pimco and Bill Gross loomed large over the market. And that is literally true. They were such massive investor that at times it seemed like their success was sort of mixed up with their size. How much of Bill Gross’s strategy, and the success that he enjoyed, how much of that came from simply being bigger than everyone else?

Mary: (09:43)
I think that’s such a good and astute question because people often get that backwards where they’re like, oh, did he underperform because he was too large for the market. And you’re right that it actually was an asset. You know, I guess in equities, it’s harder to who maneuver or something, but in bonds, it definitely can be an advantage, especially in, you know, anchoring a new issue bond as it comes to market, you’re gonna get more of the allocation. And those basically always outperform, you know, pop when they hit the market.

So I think it’s hard to say how much of the outperformance was due to size. I’m thinking of this paper that two researchers did in 2019, that kind of teased out the reasons for Bill Gross and Pimco’s outperformance over the decades. And that was one of their kind of grab bag items. You know, they were like, this is not something that they were able to strip out as a factor, but it’s basically present throughout Pimco’s Total Return’s history, where they were always a bit big for the market and for the mortgage-backed market.

Matt: (10:36)
What were the big factors?

Mary: (10:38)
So it’s interesting. There are three main ones that those researchers found and it actually aligns pretty well with what a source told me, gosh, five years ago, because I’ve been working on this for too long, that there were only four things you needed to know to do well at Pimco. There are four things that Pimco does — long duration, the curve (focusing more on like the four, five year part), going long credit and short vol, that’s it. And, you know, short vol means selling volatility and finding other ways to kind of embed optionality and leverage in your kind of everyday life, if you will.

Matt: (11:12)
And avoid buying options too, right? Like one thing that he says in some of the outlooks is that he like doesn’t want to pay up for bonds with a lot of complexity, because optionality is not worth anything to him.

Mary: (11:22)
Right, right. He wants to be selling it, not buying it because he realizes that people want to sleep at night and he doesn’t care. Like everyone else wants the optionality. And unless he can get compensated over and above, it’s in contrast to the Ginnie Mae where there was a lot of optionality, but it was stuff that they exercised. They don’t want options just to be able to do it. They wanna actually do it if they want them, you know?

Matt: (11:42)
So he, like, he was the Bond King, he had a great run for decades. And then he left to go to Janus. You know, I think it would be fair to say, did not continue to have a great run [there]. So when you, when you list those factors, it’s like long duration, long credit, you know, short vol that describes a sort of placid market of generally declining rates, that’s a strategy for a placid market of generally declining rates, which is kind of what he had for like 30 years. Did he just miss a regime change? Was he like a really good investor for like a particularly long bond bull market? And then he couldn’t adapt, you know, what’s going on?

Mary: (12:17)
I think to some extent, yes. And there’s this famous — at least to me — investment outlook from April, 2013 where he asks, am I a great investor? No, not yet. Because he was basically seeing the same thing that you are, that he’d had a long bull market to invest in. He’d done really well over that period, but he felt that he was pretty untested — he and all of his peers. And you know, when he went to Janus, it’s hard to say, because over the longer term, you know, interest rates are lower now than they were then, or they, you know, were lower now than they were then. So they moved around a little bit. But from his start date at Janus through his retirement date, you know, actually did interest rates did go up. So I do think you’re right. I think that over that period, over his long career, he did have the benefit of a bull market. And yes, his strategies, I think, did perform better in that environment, you know, like buying credit, focusing on duration, like all of these things absolutely perform better when you have the wind at your back. Cash and cash equivalent arbitrage kind of, is that an abuse of that word? Are you upset?

Tracy: (13:18)
I think it’s okay. This is a safe space.

Mary: (13:20)
You’re allowing that? Okay. Thank you.

Matt: (13:21)
It’s all arbitrage. Everything’s an arbitrage.

Mary: (13:24)
There’s a colloquial arbitrage and then a real one. And I’m using the colloquial.

Matt: (13:27)
This is just to take more risk, which is kind of an arbitrage.

Mary: (13:30)
Thank you. I’ll accept. But basically, you know, when they had a position that required cash, required them to hold cash against it. A lot of their competitors would be like, okay, cash, great. I shall hold cash. And Pimco was like, okay, great. And cash equivalents, what do you mean? You know, what does that mean exactly. And they would go as far as they humanly could, to the extent of risk taking in that cash equivalent bucket. So that means, you know, [holding] short-dated corporate floating notes and making sure that they’re getting every last potential basis point out of that cash equivalents bucket where everyone else is just getting whatever cash is yielding and not sweating it, not kind of going that extra marginal mile to get the extra basis point.

Matt: (14:12)
I love that. He’s like this renowned bond investor who becomes a billionaire. And at the end of like a bunch of the years in the book, you know, when he’s outperforming the market, it’s like he had a blowout year in 2008, he saw the crisis and no one else did, he outperformed his peers by 35 basis points.

Mary: (14:32)
Okay. It was 2 percentage points in the year that you’re think of.

Matt: (14:35)
Two percentage points, but this is like in 2008 where, you know, John Paulson has like quintupled his fund or whatever, right? Like people who called the crisis right, you know, the sort of stereotype is that they like started with a little bit of money, ended up billionaires. But like Bill Gross started with trillions of dollars and added like 2% to it. How should we think about that performance? I don’t know. It’s just fun.

Mary: (15:00)
The fundamental thing that I think you’re hitting on there is the structure of the trade, where a lot of the people that were, you know, Big Short-type crisis callers, they structured trades more on time, where if they had messed up the time horizon, and some of them did and didn’t make it into the kind of pantheon, the whole trade wouldn’t work. So a lot of that was extremely risky. So the Pimco view was, yeah, we think this thing’s coming. We have no ability to say when exactly. And we’re gonna structure a longer term trade around this, where they both pulled back on risk, going into the crisis and then were able to scoop things up when things were healing. You know, everyone else was selling at a discount because they were panicking and they hadn’t had the same foresight, Pimco was able to buy those assets at an extreme discount and then outperform for more years. So if you look over the longer time horizon, and this is also in Dan Ivascyn’s fund in Pimco Income, where you see that they not only did well stepping back and not taking the same risks as everyone going into the crisis, but then in the years after. So it’s more of a cumulative over many years, but also, yeah, it’s just mutual funds. You’re gonna have less exciting, or you’re supposed to have less exciting, you’re not supposed to have a blowout like that.

Tracy: (16:14)
Just on that point, here’s a slightly weird question, but do you think that Bill Gross either knowingly or perhaps by accident mis-sold what bond investing actually was? Because I remember in the early 2000s, you know, he was talking about this idea that if you do it the right way, you can get stock-like returns on, on bonds, which are supposed to be safer. And the way you do it is you use lots of volatility-selling strategies and you use lots of leverage and things like that is that. Is that what bond investing should be, or is there inherently, you know, a discrepancy between in stocks and bonds and the returns that are possible there?

Mary: (16:56)
I love that. I think there’s probably, you know, he always got this ding, I think, where people called him a hedge fund manager in a mutual fund wrapper. And I think that’s probably true. You’re exactly right. I kind of wanted my bond funds to be managed by a dork in Boston. Like I’m trying to state calm here. I don’t necessarily want you to be doing like, one guy told me that the consultants used to call this Gross cash. They’re like, I don’t know what you’re doing with this cash and cash equivalent stuff and Lambda cash and all these other strategies that they used. It was like, it’s working. So I don’t mind, but I’m like, whatever you’re doing this like weird magic in the market, like, thank you, great. I’m not gonna look too close to. And I’m sure, you know, they’re all fiduciaries, everyone looked closely. I’m sure they did that. But there is an element of like not examining it when it’s working and it worked for a long time.

You know, it was obviously to your benefit for a very long time. But at the same time, it’s like, is this good risk that we’re taking? Is this what I want to be doing? This is kind of funny to me where like the cash equivalent thing, there was apparently a pretty robust debate at times about whether or not Russian floaters should count in the cash equivalent bucket. Saying that right now, today, feels bananas, right? Like that shouldn’t be a conversation. But in other times you can imagine that that’s like, that’s probably fine. That’s probably fine. We can get away with it. And is that what you want as a mutual fund investor? Like with your retirement money? You wanna get away with Russian floaters? I don’t know.

Matt: (20:28)
I feel like it’s Odd Lots. We should talk about the bond market, but like your book is partially about the bond market, but it’s also a lot about like the human drama of Bill Gross’s overthrow. His character is sort of like, he’s a genius investor who is not good with people. And he works at this institution where he’s not the CEO, he’s the chief investment officer. He makes the trading calls and someone else is in charge of management. And yet his managerial style is sort of what pervades the place and what ends up, I think, getting him ousted. How can you, you know, have that guy run your investments and not drive everyone crazy?

Mary: (21:09)
Yeah, I think, I mean, it worked for a long time in part because there were people in the CEO position that Bill trusted and respected. And if that’s the case, he kind could allow them to do their job and manage people and make executive choices. And he wasn’t really gonna interfere. He might like snark around a little bit and give them the silent treatment for hiring too many people or whatever, but he’s not gonna, he generally let them do their jobs. And I think that’s, part of it is, you know, in the seventies and eighties and nineties, this was a bit easier because a lot of the people came up with him and were his peers and he respected them. And then when you get Mohammed El-Erian in the door, you know, there are multiple reasons why that relationship didn’t really work out.

One being that their personalities are just so different and their managerial instincts and investing instincts are so different. One reason being that, you know, Bill, you know, there’s this sense that Mohamed at the 11th hour asked to be co-CIO and co-CEO, you know, he was supposed to just be kind of Bill’s heir. But I think, you know, having someone in that role who he mistrusted was probably to some extent, always gonna be a cursed outcome. If you’re able to keep the lanes clean and able to let him just do his job, yes, it creates this culture. But I think you, I think they were able to now navigate around that culture for a long time. There’s an open question as to whether that would’ve been successful — even with the optimal chief executive — in today’s climate, where we’ve done a lot of kind of renegotiation of what we ask from our employers. But yeah, I think it’s a matter of like respect and trust and allowing people to give each other space.

Matt: (22:47)
Is Pimco like nicer and chiller now?

Mary: (22:50)
Hahaha. No.

Matt: (22:52)
Not even a little?

Mary: (22:52)
I think it’s safe to say no. They were kind of trying to project that for a while. And I asked folks on the Street and I asked people inside and they were like, no. No, if anything it’s worse. So I don’t know, take that as you will.

Tracy: (23:04)
So just on that note, I mean, reading your notes as an author, and there’s a very funny, but also disturbing anecdote about the rumors swirling around you as you reported out this book for many, many years. But one of the things you talk about is this idea of the toxicity of that work environment kind of rubbing off on you as you interview all these people who all have agendas, who all want to tell their own versions of the history. What was that like?

Mary: (23:37)
I don’t know if this happens to every reporter, but I feel like when I talk to a particularly paranoid source, I come away just totally rattled. Like I internalize a lot of their anxiety and paranoia and it just stays with me and these people, the people I talked to for this book were largely all like that. I mean, there were some exceptions — people who had got out with their head on straight and retired and whatever, but to a very large extent the people that I dealt with were very competitive, very petty, very score-settle-y. And one thing that I kind of didn’t appreciate the magnitude of, but like a lot of people, the events of 2014 messed up their profit sharing, even if they were retired, you know, they had this kind of profit sharing slice of Pimco and because of the ridiculousness of 2014, you know, Mohammed El-Erian leaving, Bill Gross leaving, it hurt the kind of forward profits for the firm.

And people were really mad because it affected, you know, the payments that they expected to get. So there was a lot of financial anxiety that came to bear as well, which is like funny, because you know, I’m a public radio journalist, so that contrast was a bit sharp at times. Matt knows this story, there was one person’s wife who was like, so what are you gonna do with the proceeds from the book? And I was like, um, eat them? Like I don’t understand. I didn’t have a day job at the time. It was literally my, and let me be clear, you know, this comes in in chunks. So I was living on not a lot of money and, and she was like, well, if you need suggestions for charities, just let me know.

And I was like, thank you. I do know of charities personally, but I appreciate the offer and I will consider it. But yeah, there was definitely, I don’t know. That insecurity can rub off on you for sure. Like I’m not unfamiliar with rumors. You know, I was in a sorority. It felt very familiar to me, but it was also so unsettling because I’m just there to do a job. I’m not trying to hurt anybody. I’m not trying to take sides, which they all always thought. I’m not trying to like pick favorites. I don’t have a dog in the fight. I just wanna tell the truth.

Matt: (25:40)
In the sort of like fight over pushing Gross out, everyone was kind of using the press where like, you know, Gross was obsessed that his enemies were leaking to the press about him. And then he would call into TV shows or call reporters and say things that in hindsight were really embarrassing. Was that fun?

Mary: (26:00)
I, yeah. I mean, it’s tough because as you know, I hate being a conduit. I really hate when my entire role in a situation is simply conduiting someone’s thoughts. Obviously as a journalist, that happens a lot, but I like to be able to use my brain and participate and you know, weigh things myself and come to a judgment. You know, I like to be kind of an active participant in my job. So to some extent it was, it’s really annoying to be used as a tool for score settling. And I think it’s interesting because it’s so not that emotional, it’s so not that, look, I just don’t have a team. And that seems very hard for a lot of people to grasp.

Tracy: (26:42)
Do you feel like after finishing this book, you have a better handle on what drives people like Bill Gross and some of the other executives at Pimco? So I know you talk in the book a lot about Gross emphatically said he wanted to become famous. He wanted to become a very, very famous bond investor and obviously he wanted to get rich and he seems to have been very successful at doing that. And then you have a lot of money involved for the other executives. I think towards the end of the book, you talked about one of the bonus pools being something like $520 million?

Mary: (27:10)
Between just Gross and El-Erian, yeah.

Tracy: (27:13)
Yeah. Which, I mean, you know, half of 500 million, I’m sure will motivate anyone, but given all this revenge-seeking and some of the behavior that you wrote about and that we witnessed in 2014 and years after that, what do you think drives these people?

Mary: (27:31)
Hmm. I think it’s instructive to look at Bill’s behavior without the money management, you know, since his retirement. There’s this, I get this sense that he digs in and he’s put it that he doesn’t back down from a fight. He can get entrenched in these bilateral, I don’t know, I don’t wanna say wars, but you know, in a dynamic, in a relationship where he can’t seem to find a graceful exit and I mean that — who among us, right? Been there — but it is this kind of, you know, you wish that, that people can find an exit and you wish that people can kind of graduate beyond this kind of allowing themselves to get locked in a dynamic like that. But I do think it is competition. It’s competitiveness. It’s trying to prove to someone else that you’re the real deal.

Mary: (28:23)
That’s something Bill said a lot. And Bill will tell you, he did this throughout his life. You know, this is true in the eighties when he got divorced and was trying to date and he always wanted to prove to the last person that they missed out on a good deal. There’s something so normal about that. But at the same time, the scale of the competition gets so mind boggling when you start adding zeros and get to 500 million for one year, like, yeah, it absolutely becomes ridiculous, but it’s, those numbers are actually meaningless to them, you know? Except in a relative sense, compared to the person that they’re locked in a terrible relationship with, you know?

Matt: (29:03)
Yeah. I mean, I’ve like written and talked about this, but one of my favorite things in the book is like, as matters are coming to a head, you know, Bill Gross calls a meeting and he like obsessively charts the seating plan and puts the people he’s mad at, like, not at the main table. And then they get all mad. And I love the idea that like these people like right, the number of zeros in their paycheck has sort of lost its meaning. And they’re just in the same, like, sort of micro status battles as everyone is all the time. And like, if they’re not sitting at the right table, then they’re just mad and like, that’s what is motivating them more than, you know, the hundreds of millions of dollars they’re making.

Mary: (29:42)
Yeah. You put it, when we had our chat at McNally Jackson, you had a nice turn of phrase where you were like, they just wanna be treated like adults. And they feel like they’re being treated like children. And I think that’s so true. Like, the degree of childlike behavior among people that we trust as fiduciaries and not that they were like, you know, not that that makes you godlike or beyond reproach, like of course fiduciaries are human beings, but there is something a little disorienting about that.

Tracy: (30:08)

There’s a former Pimco manager who messaged me right before we started this chat saying that he literally, he liked Bill Gross, but he used to speak to him like he was a one year old, was the way he put it. And they got on apparently

Mary: (30:22)
Amazing. I have so many guesses as to who that is, but no, sorry.

Tracy: (30:25)
I think you probably know, but just going back to a point that Matt made as well about, you know, Bill Gross’s managerial style, there was an option that did come up towards the end of his tenure at Pimco, the idea that well, maybe they remove him from all the managerial stuff, put him even in a different office and just give him some money and let him invest and not have to deal with people. Because clearly he didn’t like it. And he was arguably not very good at it. Why couldn’t that happen? Why wasn’t that an option?

Mary: (30:58)
I think by the time that idea was being batted around, it was just too late. Like they had by that point a year of trying to negotiate an exit for Bill and trying to figure out the best path forward. And it seems like they were just so out of step with each other and by they, I mean Bill Gross and the rest of Pimco management, where Bill would come to the table and say, Hey, I’m ready to step back. Let’s do this and this and this. And they would say, oh great. When can we do it? And then, you know, he would, according to, you know, my sources, he would flip flop and say, oh no, I don’t want that. I never wanted that. And this happened in a bunch of different kind of iterations and in different ways.

And, you know, one example that’s a little bit famous among people that I talked to is the time when he agreed to meet with a mediator for his relationship with Mohammed El-Erian. And basically he, everyone says, oh, Bill agreed to this. Okay, fine. We’re gonna schedule this. They found a mediator. They started to put it on the calendars and Bill’s like, I never agreed to this. And Bill says, you know, people hear what they want, but I truly, to this day, maintains that he never agreed to it. And I agree with him that people hear what they want, but there is this sense of like, okay, but eight people heard you say yes to this and wrote it down. And you know, at a certain point we have to try to move forward. By the time the idea was being battered around that they could maybe just give him a pile of money, a little side car as they called it, and let him just play with the money, play in the market, be happy, be over there and not bothering anybody. It was almost as though, I think this is kind of his characterization, but it’s almost as though his presence was just too toxic, that it was too upsetting to even have him in the building. But basically that they couldn’t, they felt like they couldn’t trust him anymore to agree to this plan and stick to it and carry it out. That it would still be more drama, more chaos, more moving the goal post.

Matt: (32:44)
One implication of the book is that although he was not the CEO, he was to such a degree, the star performer that he could, he like had soft power. Anyway, like at some point he tells El-Erian I’m Secretariat. You don’t bet against Secretariat.

Mary: (32:56)
Yeah, I think it’s interesting because in the beginning, you know, they made such a big deal about the three legged stool of the co-founders being equal. But the two other co-founders kind of fell away and only Bill was left and there seems to be this kind of institutional slant where the portfolio managers are the most important where, you know, if you’re a client person, you serve the portfolio manager, if you’re execution, everything revolves around the performer. So I’m not sure, you know, it does sound like everyone was a bit more collegial back in the day. I mean, still with the same kind of joking that I don’t think I would be able to tolerate, but they, but I’m not sure, you know, it seems like towards the end. Yeah. There was this extreme tilt that made him the leader and made people wanna be like him and act like him. And certainly he set the tone, you know, you can’t, if Bill Gross says no noise on the trade floor, there’s gonna be no noise on the trade floor.

Matt: (33:48)
Do you think that’s true elsewhere in the financial industry? It seems so like ingrained that the person running the money and making the investment decisions is the most important person and the person like doing investor relations or managing HR is subservient to them. But like, is that how it works everywhere? Because, you know, I go back to like Bill Gross’s outperformance by like 50 basis points, right? Meanwhile people were raising trillions of dollars, right? Maybe those people were raising trillions of dollars were actually quite good at their jobs.

Mary: (34:21)
No, I think you’re exactly right. And I think this is sort of like …

Matt: (34:24)
And there are other like, you know, big financial institutions where I’d be like, yeah, the investor relations people there are really important given the performance.

Mary: (34:30)
Completely. There are good IR people and bad IR people. I think that’s completely true. And that’s underappreciated. And I have some views on this, given that that’s typically where you would find women in the financial industry. You know, for many reasons as to why that has turned out to be the case and for, you know, and I think that also kind of feeds why we think of it as, I don’t know, it’s kind of a chicken and egg problem, but I have this argument that Pat Fisher should be — you know, this is a woman who ran operations at Pimco — and I strongly believe, this is just me, no one one else is making this case but me, probably — I shouldn’t say that maybe, someone out there is making the case, but I have this strong belief that Pat Fisher should be counted as a co-founder.

She ran operations at Pimco. And I was just talking to a guy who used to work there, who, you know, doesn’t know this theory of mine, but he was like, yeah, you know, Pimco was so strong in operations and trade execution. And just if your botching every third trade and calling Goldman and saying, shoot, I’m so sorry, do you mind? Goldman’s gonna not look to your trades. You know, they’re gonna stop trading with you as much. They’re gonna be like this person doesn’t know what they’re doing and Pimco wasn’t that. And that, you know, there are a hundred different times that I do this in the book, but Pat Fisher helped to build the thing that made the company run seamlessly. And that is so underappreciated because it’s back office. And again, I think there’s some sexism in there and, you know, we’ve built a world in which there’s this like hegemony of portfolio managing

Matt: (35:53)
Or like, you know, in the book, there’s this scene where Bill Gross blows up at the woman who runs product. And says you’re introducing products that the portfolio managers didn’t approve and she’s like, that’s actually not true. But like, you know, when I think about giant financial, like giant asset managers, I think more about product than about portfolio management. I think like, you know, the person who’s like we’ve introduced a meme-themed ETF. That’s how they get the money. It’s not by like outperforming by 10 basis points. And I’m sure I’m exaggerating here, but like that job of figuring out like what sort of wrapper people want things in seems like at least as important as like outperforming 72% of other, you know, investment grade bond managers.

Mary: (36:35)
I think that’s true. Because if you look back, you know, at products that they were selling in like the forties, they’re not that different. Like everything is the same. In the process of reporting this book, I talked to a pension manager who had overseen the AT&T pension fund and he was like, yeah, you know, I remember being in a helicopter, like looking at a mall that we were thinking about buying. And then I had a passive strategy and I was like, wait, what? You were doing a barbell in the seventies, like where was I on this? I just wrote this article about how people are doing a barbell. And it was like a new thing to me. Like did I just wake up? Have people been doing this the whole time? And yes, like this is, we put new names on them and we find more tax efficient strategies or whatever. But to a large extent, it’s the same stuff repackaged. And you know, as a person picking funds, you’re kind of like, I’m clever. I wanna pick the thing that’s cool right now. I love a meme. Let’s do this, you know,

Tracy: (39:35)
What is Pimco like right now? Because of course they had this exodus in 2014, they lost, I think one of their few senior women, uh, they lost one of their few senior persons of color in the form of Mohammed El-Erian. Clearly Bill Gross’s focus was on the Total Return Fund and what was going on with his portfolio management. But as you and Matt just laid it out, products were becoming more and more important. There was more and more of a tilt towards getting even more passive, as low cost as physically possible. Has PIMCO changed much?

Mary: (40:15)
I’m sorry to report that I don’t think they’ve changed much. I don’t think it’s, you know, I think they are working on it much like a lot o, asset managers, financial firms are trying to figure out what’s gone so awry and why they simply have so few women and people of color, like so weird. From what I’m hearing, it’s not really going swimmingly. I think it was last year that there was a letter from 21 current and former female employees saying, you know, we’ve experienced discrimination here at Pimco. And I think at the beginning of 2021, PIMCO had never had a black partner. Never. Not one. They just simply couldn’t find one. And I just find that beyond disappointing, right? It’s so troubling, because if you think through what … You know, they think it’s a meritocracy.  So what does that mean?

Like if you take that further, if you go to the like logical extension of that, I just, it’s indefensible. And I don’t think, I don’t know. I think there’s this kind of, obviously we’re having a broad, you know, pan-industry reckoning with what we do at work and how we feel about work and what we bring to work and, you know, what’s allowed at work. And I think that’s especially acute at a place like Pimco, because those old school Wall Street cultures that are so tough and so exclusionary are, they just look real bad right now. And to a large extent, I think it’s just not tenable anymore.

Matt: (41:41)
Meanwhile, Bill Gross has a book out. He’s keeping busy.

Mary: (41:47)
Beautiful segue, Matt. That was really nice.

Matt: (41:48)
He’s got a book out. He got a suspended jail sentence for playing the Gilligan’s Island theme too long. Like, has he, is he having a reckoning with any of this? Like, do you think he’s been introspective about like the last few years and about your book?

Mary: (42:07)
It’s funny. Yesterday, I had my first interaction with Bill in over a year. I had tweeted the Planet Money story that we did, Planet Money episode that we did about, you know, the Bond King. And he replied to my tweet with a link to his book, which is just stellar marketing, and so on brand. But I do think so. It’s interesting. I have always kind of thought of him as a reflective person, as introspective as a bit self-aware, you know, to a point who among us, but I was talking to a colleague who covered Treasuries for ages, and he was saying that it was a performative self-reflection or self-awareness. That actually Bill is, it’s part of that facade, that persona that he would put on. But actually there isn’t that much real soul searching, which I don’t know. I mean, he’s been, you know, in his book, he talks about his ouster in, you know, a recent interview with the FT.

He talked about his ouster and what he did wrong, and he definitely has thoughts. So it’s hard to, it’s hard for me to gauge how much of that is truly internalized and like from the heart, but he does seem to find fault with his behavior and that he, you know, thinks he maybe should have done things differently, which probably we can all agree. But yeah, I don’t know. He’s been busy. He’s been, you know, feuding with his neighbor, writing this book, publishing it two weeks before mine and replying to tweets.

Tracy: (43:30)
What do you think Bill Gross’s legacy in terms of the bond market or investing actually is?

Mary (43:33):
Hmm. Two answers. From a pure investing standpoint, I think it is seeing these market inefficiencies, these factors that he identified and was able to wring outperformance from for decades. So those were true insights and I do think that that is, you know, he is the Bond King in that way, and helped to bring about this revolution of active bond trading. And then the second answer would be kind of, it’s hard to say if a world without Bill Gross would have the same cultural shape that the bond market would look the way it does. And then that everyone would act the way they do in the bond market. You know, Pimco is certainly on the sort of extreme of behavior where they’re harder on the Street than everyone else, they’re cutthroat. They’re a little meaner, they’re whatever. I don’t know that everyone like necessarily is quite as acerbic in dealing with their Wall Street coverage. But I do think that it was a model. It was a way, you know, people looked to him as a role model. That he’s like on TV talking about his securities and talking his book and people are like, that is so cool. That’s amazing that he can do that. The Beach does something and everybody follows. And that was absolutely, you know, that degree of influence is certainly widely admired and emulated, you know, aspirationally emulated,

Tracy: (45:22)
Mary Childs, thank you so much. The book again is “The Bond King: How One Man Made a Market, Built an Empire and Lost It All,” and you should definitely check it out.

Mary: (45:31)
This was so fun.

Tracy: (45:33)
So Matt, obviously that was a fun conversation. And I know you’ve been sort of involved in the production of this book and acting as an advisor on a lot of the content and just, I guess, providing emotional support to Mary, because it sounds like she needed a lot of it given the personalities involved, but one of the things that I find really interesting about that, well, one of the things I keep thinking is that Bill Gross was sort of born out of the 1970s, early 80s, when you finally got a lot of interest rate volatility, which made bonds more interesting. And which then gave rise to bond kings like him and a few others. And I kind of wonder if the period that we’re entering now, if we’re gonna see the same sort of birth of a new asset class or a new group of investors with a slightly different strategy who come out of it really successful.

Matt: (46:27)
Yeah. I think that’s possible. I do think that one thing that that is true about Bill Gross is that he came up at a time when it was sort of hard to be a famous investor. And he ended up running like a mutual fund, which was sort of how you became a famous investor in the seventies and eighties. And, you know, like certainly there was a lot of volatility in 2008 and the people who became famous out of that were hedge fund managers. And I feel like that’s where the action is for the foreseeable future, is like people who can make really kind of bold, concentrated bets rather than running, you know, trillions of dollars for like households and pensions. It feels like that’s where the celebrities are minted these days. I can’t imagine that going back, you know, but certainly there will be celebrities minted out of this, you know, out of, out of today’s volatility.

Tracy: (47:15)
Yeah, but probably not your average ETF manager or something like that. But that was the other thing that I was thinking about was this idea of whether or not the way Bill Gross ran a bond fund was the sort of gold standard of running a bond fund. Because when you listen to Mary talk and describe, you know, his strategy or the secrets of Pimco’s success — going long credit, buying duration, selling volatility, treating Russian forwards as cash equivalents. I mean, if you think about someone doing that over the past month or two, it’s just a recipe for disaster. And so you get that question once again, whether or not Bill Gross was lucky that his period of being at the helm of a very large investor coincided with very low interest rates and a period of generally low volatility or whether there was something else there.

Matt: (48:09)
Yeah. But it’s hard to know because it’s not like it’s not like he was born to sell volatility. It’s like he came to a reasoned conclusion.

Tracy: (48:15)
He identified the right strategy for that environment.

Matt: (48:16)
Yeah. And like, he wrote notes saying like, this is how we expect the next 10 years to go. And so this is why we’re going to, you know, be structurally short volatility. And he was somewhat able to adapt, right. I mean, he ended up not doing as well in a higher rate, you know, sort of different environment than he did during the sort of long bond bull market. But it’s not like he just sort of set it on autopilot for 30 years that it happened to work out.

Tracy: (48:43)
That’s true.



Updated: 4-5-2022

Global Bond Selloff Deepens As Fed Steps Up Tightening Rhetoric

* Treasury 10-Year Yields Breach Bottom Of 2018-19 Ranges
* Australian Benchmark Yields Jump To Highest Level Since 2015

This year’s unprecedented global bond rout accelerated after Federal Reserve Governor Lael Brainard said the U.S. central bank will likely step up policy tightening by swiftly reducing its massive debt holdings.

The prospect of aggressive Fed action drove the yield on benchmark 10-year Treasuries up five basis points to 2.60%, propelling it back into ranges seen in 2018 and 2019. The yield spiked as much as 17 basis points on Tuesday. Australian bonds slumped, with 10-year yields climbing as much as 13 basis points to 2.98%, the highest since 2015.

Bonds worldwide are extending losses this week after completing an eight-month losing streak, the longest on record, according to the Bloomberg Global Aggregate index. Investors are dumping fixed-income securities as policy makers move to raise interest rates in the face of surging global inflation and tightening labor markets.

The Reserve Bank of Australia became the latest central bank to take a hawkish tack, dropping a reference to remaining “patient.”

“The path of least resistance is for yields to head higher so we expect rallies are likely to be shallow as they will be sold into,” said Prashant Newnaha, Asia-Pacific rates strategist at TD Securities in Singapore.

“It’s unlikely Fed Chairman Jerome Powell will tone down Brainard’s hawkish stance when he speaks next, and CPI next week is also likely to keep bonds offered into the release.”

Brainard, who is awaiting Senate confirmation to become Fed vice chair, said on Tuesday that the central bank “will continue tightening monetary policy methodically” and will start “to reduce the balance sheet at a rapid pace as soon as our May meeting.”

The comments on the Fed’s so-called quantitative tightening added fuel to a rout that had already driven Treasuries to the worst losses in decades this year as traders braced for an aggressive series of rate hikes. Yields also rose on sovereign bonds across Europe Tuesday, while New Zealand 10-year yields jumped 17 basis points to 3.42% on Wednesday.

‘Hawkish Communication’

“The market appears to be expecting fairly hawkish communication regarding the Fed’s tapering intentions, from the upcoming FOMC minutes” due Wednesday, said Andrew Ticehurst, a rates strategist at Nomura Inc. in Sydney.

“Our U.S. colleagues expect three consecutive half-point Fed hikes and an eventual 3.75% to 4% peak in the Fed rate. Combined with fairly aggressive balance sheet run-off, this suggests that U.S. yields have not yet peaked.”

Swaps markets anticipate the Fed will start increasing rates by more than a quarter percentage point at a time, with greater than 80% odds of a half-point move priced in for the May meeting. Overall, around 2.22 percentage points of additional hikes are priced in for the next six meetings through December, up from 2.13 on Monday.

“The whole Fed tightening narrative is being moved up in time and magnitude,” said William O’Donnell, a strategist at Citigroup Inc. “QT is coming in May. They want to go sooner and bigger in terms of shrinking the balance sheet.”

Brainard said shrinking the Fed’s balance sheet would occur “considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19.”

Updated: 4-6-2022

Crispin Odey’s Hedge Fund Surges 53% As Short Bond Bet Pays Off

* His Flagship Hedge Fund Had Been Betting On Soaring Inflation
* Gain Helps Recovery From Sharp Losses Between 2015 And 2020

Crispin Odey’s high-conviction short bet on government bonds is paying off.

His flagship Odey European Inc hedge fund soared by about 15% in March, according to an investor update seen by Bloomberg. That lifted this year’s return to 53%, the update shows.

Odey has long predicted and bet on surging inflation and is being rewarded now as central banks reverse their easy money policies and scramble to combat soaring prices.

A spokesman for London-based Odey Asset Management declined to comment.

Odey’s leveraged short exposure to bond trades totaled almost 500% of his fund’s net asset value at the end of February, mostly related to two U.K. government securities that mature in 2050 and 2061, according to a separate investor letter. The fund made money as both the long-dated bonds fell this year.

“Everybody knows that the West is bankrupt somewhere around interest rates of 3%, so the fight now is how can 0.5% interest rates slow down inflation which is potentially on its way through 10%,” Odey told clients in the letter last month. “Long bonds are fighting this battle pretty much on their own.”

The bounce back is helping Odey recover from five annual declines in six years through 2020. He made almost 54% last year but is yet to recover all the losses since 2015.

His investing strategy ran about $600 million at the end of February.

Updated: 4-7-2022

Who Will Buy Bonds The Fed No Longer Wants?

The new era of inflation has only just begun to wreak havoc.

The bond-market beatings will continue until morale improves. It’s not been much fun investing in fixed income in recent months. The three-year U.S. Treasury yield, for example, has risen fivefold since the start of October; the ascent shows little sign of abating.

If bond traders are correct in their prognosis that inflation has raced to become endemic rather than transitory, the stock market better watch out.

Central bankers everywhere are feeling the pressure to emulate Paul Volcker, the Federal Reserve chair who famously tackled inflation by cranking up interest rates in the early 1980s. “Reducing inflation is of paramount importance,” the usually dovish Fed Governor Lael Brainard said earlier this week.

But as U.K. hedge fund manager Crispin Odey, who’s made big profits this year betting against bonds, put it in a letter to clients last month: “Everybody knows that the West is bankrupt somewhere around interest rates of 3%, so the fight now is how can 0.5% interest rates slow down inflation which is potentially on its way through 10%.”

The rapidity of the change in the inflation outlook was detailed in a speech earlier this week by Agustin Carstens, general manager of the Bank for International Settlements. Carstens suggested a “change in paradigm” may be needed, because capping the rise in consumer prices is inconsistent with the growth-fostering monetary and fiscal policies central banks and governments have pursued in recent years:

We may be on the cusp of a new inflationary era. The forces behind high inflation could persist for some time. New pressures are emerging, not least from labor markets, as workers look to make up for inflation-induced reductions in real income. And the structural factors that have kept inflation low in recent decades may wane as globalization retreats.

Former Fed policy maker Bill Dudley warned recently in a Bloomberg Opinion column that for the central bank to be “effective” in calming inflation, “it’ll have to inflict more losses on stock and bond investors than it has so far.”

An environment where interest rates rise rapidly could trigger an ugly mess in equities, which can be hard to stop. Add in the fact that economists surveyed by Bloomberg put the chances of a U.S. recession in the coming 12 months at 20%, and the stock market looks increasingly vulnerable to a selloff.

Too much money sloshing around the system for too long has undoubtedly contributed to the inflationary mess, driven by a Fed balance sheet that’s ballooned to $9 trillion. The central bank, which only stopped adding to its bond pile last month, now wants to reverse direction sharply.

On Wednesday, it signaled in the minutes of its most recent meeting that it’s contemplating both bond sales worth $95 billion a month and half-point jumps in interest rates.

And at the European Central Bank policy gathering last month, “a large number of members held the view that the current high level of inflation and its persistence called for immediate further steps towards monetary policy normalization,” minutes published on Thursday showed.

Weaning financial markets off monetary stimulus will be tricky. Who will buy the bonds the Fed no longer wants? Much as the alleged benefits of quantitative easing resist quantification, it’s impossible to calculate the repercussions of the exit plan in advance.

The S&P 500 index is only down 6% this year, which feels wrong if Corporate America decides it needs to hold off on spending and hunker down for a coming economic storm. Fed Chair Jerome Powell has stressed the need for a nimble approach to policy making.

The fancy footwork required to pull off a soft economic landing and avoid recession while curbing inflation will require the agility of Fred Astaire and Ginger Rogers. With central bankers unlikely to match the female half of the dancing duo’s prowess at performing the steps backward and in high heels, stumbles look likely.

Updated: 4-10-2022

Treasuries Slump Ignites Global Selloff As Rate Hikes Gain Focus

* U.S. 10-Year Yield Rises Above 2.75% For First Time Since 2019
* U.K. Two-Year Yield Hits 2011 High, German Curve Steepens

Long-term U.S. Treasury yields jumped to a three-year high, fueling a global rise in borrowing costs as traders intensified bets on aggressive rate hikes from major central banks.

Ten-year U.S. yields climbed through 2.75% for the first time since March 2019 as investors priced in the impact of the Federal Reserve’s tightening plan and accelerating inflation. Traders are betting the Fed will enact about nine more quarter-point rate hikes by year-end, which would be the fastest policy tightening since 1994.

Long-term debt was weighed down ahead of the U.S. Treasury department’s sales over the coming two days of 10- and 30-year debt, with yields typically rising ahead of auctions to entice buyers. Treasuries were also pressured Monday after Inc. kicked off a 7-part debt offering.

Short-dated rates in the U.K. hit the highest in more than a decade as money markets ramped up bets on Bank of England rate increases by year-end. German yields rose to the highest in almost seven years.

Meanwhile, France’s 10-year yield premium over Germany fell for the first time in three days. Investors looked past results of the first round of France’s election — which put President Emmanuel Macron and far-right candidate Marine Le Pen in a second-round runoff later this month — and turned their attention back to growing expectations for the European Central Bank to end an era of negative rates by December.

“A move this profound from a corner of markets that has such pervasive effects — from pricing of credit to the determination of ‘risk free returns’ is a cause for major risk re-pricing, one would suspect,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. “I think the impact of such sustained and strong moves in Treasury yields will be hard to dodge for anyone.”

Borrowing costs on European debt surged, with money markets pricing two quarter-point ECB rate hikes by October. The rate on 10-year German bonds surged as much as 11 basis points to 0.82%, the highest since September 2015.

Money markets are pricing two-quarter point ECB rate hikes by October, and they are two basis points away from wagering on a third such increase by December. The German yield curve steepened, led by 30-year rates, which surged to the highest since 2018.

U.K. debt was also caught up in the rush to bet on further policy tightening ahead of inflation data on Wednesday, sending 10-year yields to a six-year high and affirming trader bets on five quarter-point BOE rate increases at each rate decision through to November.

Consumer prices in Britain are expected to jump by the fastest pace in 30 years, according to a median estimate of analysts polled by Bloomberg.

“What is discomforting is the force behind the selloff,” in U.S. Treasuries, said Ben Emons, global macro strategist with Medley Global Advisors LLC. Part of the rise for the sharp rise in yields, he said, is likely related to the fact that mortgage rates have also risen and reduced the amount of mortgages that are being refinanced, sparking hedging-related selling of Treasuries.

U.S. mortgage rates have surged to the highest since December 2018, with the average for a 30-year loan at 4.72%, according to Freddie Mac.

Asia Ripples

Markets in Asia also felt the impact of Treasury declines, which helped send the dollar past 125 yen for the first time since 2015. They also erased the premium that benchmark Chinese bonds held over their U.S. counterparts for more than decade, narrowing the spread between the two securities to the least since June 2010.

“Dollar-yen looks vulnerable to a move toward 130 if U.S. bond yields continue to push higher and the Bank of Japan remains committed to keeping the 10-year yield at 0.25%,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “This would put more pressure on other Asian currencies as well.”

The Fed last week added aggressive quantitative tightening proposals to its plan for a rapid increase in interest rates to cap surging inflation. That threatens to remove a key support for global risk assets, with high-priced technology shares feeling the brunt of the pressure as the rise in real yields threatens valuations.

The benchmark inflation-adjusted yield climbed as much as eight basis points to minus 0.11% Monday, not far off a break into positive territory for the first time in two years.

“If today’s inflation and fiscal concerns fester, the great diversification benefit provided by Treasury bonds to equity investors the last 25 years by usually rallying when equities sharply sold-off could be lost,” wrote David Bianco, Chief Investment Officer, Americas, at DWS.

“We think the next 5% price move for the S&P 500 is likely to be down given slowing earnings growth, elevated inflation and numerous Fed hikes likely pressuring the price/earnings ratio.”

The yield on the 20-year bond climbed as much as nine basis points to 3.0011%, the highest on record for the two-decade benchmark since Treasury resumed issuing at that tenor in May 2020.

Key for global markets this week is U.S. consumer price data, as the war in Ukraine, now into a seventh week, amplifies price pressures. Economists expect an 8.4% gain in March’s index from a year earlier, a fresh four-decade high. For now, strategists see the momentum for higher yields persisting.

“At this rate markets are aiming for another nice clean round number like 3%” on the 10-year Treasury yield, George Goncalves, head of U.S. macro strategy at MUFG Securities Americas, said in a note. “Given the nature of the multi-decade bond bull run, we have never had a full retracement of a prior high as yields had been consistently heading lower.”


Updated: 4-11-2022

Amazon Kicks Off A Jumbo 7-Part Bond Sale Including 40-Year Debt

* Funds Can Go To Repaying Debt, Share Buybacks, Acquisitions
* Retailer Last Sold Bonds In May When It Offered $18.5 Billion Inc. sold $12.75 billion of investment-grade bonds for general corporate purposes that may include repaying debt as well as funding acquisitions and share buybacks in its first note sale in about a year.

The online retail giant issued senior unsecured bonds in seven parts. The longest portion of the offering, a 40-year security, yields 1.3 percentage points over Treasuries after initial talks of around 1.55 percentage points, according to a person with knowledge of the matter, who asked not to be identified as the details are private.

Amazon last tapped the U.S. debt market when it sold $18.5 billion of bonds in May, also for general corporate purposes that included possible refinancing of debt and share repurchases. The 40-year security on that deal priced to yield 95 basis points over Treasuries.

While yields have jumped since its last issuance, selling debt now makes sense because borrowing costs may be headed even higher as the Federal Reserve fights inflation and tightens the money supply.

Even as it once again accesses high-grade debt markets, Amazon’s credit quality is likely to continue on an improving trajectory, Robert Schiffman, senior credit analyst at Bloomberg Intelligence, wrote in a note.

The company’s balance sheet is growing and with $50 billion of outstanding bonds, it could come close to sector leader Apple Inc.’s debt of over $100 billion in the intermediate term, he added.

Amazon’s cash, cash equivalents and marketable securities stood at an all-time high of $96 billion at the end of 2021.

The company also has aggressive business ambitions, including opening new warehouses, expanding its brick-and-mortar grocery operations and sending broadband-streaming satellites into space.

In February, Amazon wowed Wall Street with a strong earnings report. While online store sales actually declined from last year’s pandemic-fueled gains, the company’s profitable cloud-computing and advertising businesses combined to more than make up for it.

Still, the company spent heavily in the holiday period to ensure packages got to customers amid supply-chain bottlenecks and an acute labor shortage.

A lot of that spending went into hiring 140,000 workers. Amazon also lavished bonuses on workers, dispatched half-empty vehicles if it meant getting packages to customers on time and secured space on any ship it could find — a spending spree that totaled $22.4 billion.

In March, Amazon announced a 20-to-1 stock split and a $10 billion share-buyback authorization that sent the stock soaring.

Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley managed Monday’s bond sale.


Muni Bond Boom Is Sputtering As Interest Rates Rise

Governments are less willing to borrow and households are less willing to invest in the $4 trillion market.

Rising interest rates are threatening the municipal-bond boom on Wall Street, leaving governments less willing to borrow and households less willing to invest in the $4 trillion market.

Bond issuance by state and local governments dropped 8% in the first quarter from a year earlier, with public officials calling off refinancings and spending down stimulus cash. At the same time, spooked investors yanked their money from municipal-bond funds, which suffered their biggest quarterly outflows since 2013.

States and cities have been forced to cut prices to sell their bonds to banks and insurance companies because muni bond funds are no longer offering top dollar, dealers said.

“2021 was a market where everybody wanted to buy because there was so much inflow and so much cash,” said Chris Lee, head of municipal sales at Wells Fargo & Co., the fourth-largest muni-bond broker-dealer by volume last quarter. “This year it’s much more of a negotiation.”

Bonds from corporates to Treasurys suffered their worst start to the year in decades, ahead of Federal Reserve moves to rein in inflation. After increasing interest rates by a quarter-percentage-point last month, the central bank could raise rates by a half-percentage point in May and begin reducing its $9 trillion asset portfolio, the Fed’s latest policy-meeting minutes suggest.

Benchmark yields on triple-A, 10-year, tax-exempt general-obligation muni bonds were 2.34% on Friday, compared with 1.03% a year earlier, according to Refinitiv Municipal Market Data. For investors in the top tax bracket, that equates to a taxable yield of around 4%, according to data from Nuveen Asset Management.

“Definitely it’s been a damper on refinancing,” said RBC Capital Markets municipal syndicate desk managing director Glenn McGowan, who works with state and local governments selling bonds.

Municipalities borrowed a combined total of about $97 billion in the first quarter, slipping below $100 billion for the first time since early 2020. Refinancing activity fell by nearly half, to $21 billion.

For the past two years, state and local governments have executed about $40 billion in refinancing deals in the first quarter, as public officials took advantage of low rates and put off debt payments to manage a Covid-19 budget squeeze.

Now some governments are relying less on borrowing for budget management after collecting record tax revenue from the stimulus-fueled economic boom, as well as direct federal aid.

Covid-19 aid from the federal government freed up room in Chicago’s budget to make coming bond payments, allowing the city to cancel a plan to cover the payments with new debt, according to budget documents. New Jersey, flush with revenue from a banner year last year, is planning to pay up front for $1.2 billion of capital projects rather than borrowing at rising rates, the state treasurer’s office said.

Borrowing for new projects remains strong even as refinancing has dropped. But it can’t be determined when demand will catch up with that supply. Investors who are tired of watching their mutual-fund shares sink in value pulled money from municipal-bond funds for the eighth consecutive week during the period ended Wednesday, according to Refinitiv Lipper.

The prospect of new borrowing at higher rates makes outstanding, lower-coupon debt less attractive.

Municipal bonds have the benefit of paying interest that is exempt from federal and often state income taxes. They have posted negative returns so far this year but haven’t performed as poorly as some other fixed-income assets. They have returned minus 6.89%, compared with minus 7% for Treasurys and minus 9.31% for corporate bonds as of Thursday, according to Bloomberg indexes.

Still, of 130 analysts polled by dealer HilltopSecurities in March, 44% expect municipal bond fund flows to be negative in 2022. An additional 27% expect net inflows to be less than $25 billion. Inflows last year were $66.5 billion.

An exodus of municipal bond fund investors can have a major impact on bond prices because mutual funds hold about 23% of outstanding debt, according to Fed data.

Prices tanked when investors withdrew more than $30 billion in six weeks in the early days of the Covid-19 pandemic, but the panic was short-lived. Muni-bond funds suffered a net $10.8 billion in outflows in the first quarter of 2020 and ended the year with inflows of $22.2 billion.

Net outflows in 2022’s first quarter were $14.9 billion.

“Even in the worst Covid year, outflows were still a real net positive,” said Tom Kozlik, head of municipal research and analytics at HilltopSecurities.

The last time yearly municipal bond fund flows were negative was in 2013. Back then, investors were fretting over deteriorating finances in Detroit and Puerto Rico and bracing for the Fed to start dialing back the easy-money policies that had supported credit markets since the 2008-09 financial crisis.

This year’s falling prices have attracted some buy-and-hold investors. Bondholders who own munis until maturity, collecting interest payments along the way, don’t have to worry that they will end up cashing out at an unappealing price driven down by market movements.

Investment adviser Edward Mahaffy of Little Rock, Ark.-based ClientFirst Wealth Management, said he has been buying high-grade bonds maturing in three to four years for his clients.“I have been waiting for an opportunity like the one we are now experiencing,” Mr. Mahaffy said.


Updated: 4-20-2022

Bitcoin Bid As Real Bond Yield Remains Negative For Main Street

The latest moves in crypto markets in context for April 20, 2022.

Market Moves

Risk assets remained buoyant early Wednesday. In traditional markets, the real or inflation-adjusted yield on the U.S. 10-year bond flipped positive for the first time since early 2020. However, for the general population, facing an above-8% inflation, the real yield remains negative.

The 10-year real yield is considered the risk-free alternative to owning stocks and other risky assets.

“Real rates are a clear tightening of financial conditions, and risk assets tend to face a higher risk premia in this backdrop,” Chris Weston, head of research at Pepperstone, tweeted.

Even so, bitcoin and futures tied to the S&P 500 traded higher at press time. Perhaps investors have come to terms with the idea that the era of cheap money is passé or the real yield as represented by the yield on the 10-year Treasury inflation-protected securities doesn’t paint an accurate picture.

The latter could be the case, as TIPS are bonds issued by the U.S. government that offer protection against inflation. So, the yield on TIPS is essentially a market-based measure of returns adjusted for inflation. It’s the preferred tool on Wall Street.

On Main Street, inflation, as represented by the consumer price index (CPI), is at a four-decade high of 8.4%. If the nominal 10-year yield is adjusted for the CPI, the real yield comes to at least -5.5%.

In other words, while Wall Street may press the sell button for risk assets, Main Street still has a solid reason to diversify into perceived store-of-value assets like bitcoin and gold. Whether that comes to fruition and powers a fresh crypto bull run remains to be seen.

Updated: 4-22-2022

Trillions of Negative-Yielding Bonds Vanish

* Pool Of Sub-Zero Debt At $300 Billion, A Fraction Of 2020 Peak
* Traders See Borrowing Costs Turning Positive By End Of Year

After another wild week in global money markets, traders are betting big on the biggest regime shift in Europe in years: the end of the negative interest-rate era before 2022 is over.

Fueled by a flurry of hawkish monetary signals over the past week, the interest-rate swaps market now projects the European Central Bank will deliver three quarter-point hikes by December — winding down the eight-year experiment with sub-zero borrowing costs that’s saddled savers with financial repression and helped funnel billions of euros into speculative assets.

That’s creating a sea change in the region’s bond markets, where the pool of negative-yielding debt has collapsed to the equivalent of less than $300 billion from a peak of nearly $10 trillion in 2020.

The proximate cause: Fresh inflation alarms from five ECB officials in recent days that’s spurred investors to go big on wagers for policy tightening — and then some. Market pricing indicates the deposit rate could hit 1.5% toward the end of next year, from minus 0.5% currently.

That compares with price action in prior weeks, when traders pared bets on rate hikes after Russia’s invasion of Ukraine blighted the growth outlook.

“The hawks appear to have more credibility now,” said Rishi Mishra, an analyst at Futures First. “So if the ECB is to let the idea float of a July rate hike being alive, that gives markets a license to price closer to 100 basis points of hikes by December.”

Hawkish Talk

Governing Council Vice President Luis de Guindos, and members Martins Kazaks and Pierre Wunsch, have driven home the message this week that the central bank’s first rate increase in a decade could come as soon as July, eventually spelling the end of negative borrowing costs in place since June 2014.

Market-based inflation expectations have motored higher, with oil and gas prices surging to multi-year levels. A potential ban on energy exports from Russia — from which the European Union gets 40% of its gas — threatens to fan inflation that’s already at a record level.

“The rise in breakeven inflation rates is a key driver of that hawkish talk,” said Frederik Ducrozet, global strategist at Banque Pictet & Cie SA. “Financial conditions never really tightened enough, so the hawks had to become more aggressive for that to be reflected in the rate hike pricing.”

Swaps linked to the direction of the euro area’s Harmonised Index of Consumer Prices (HICP) over the next decade are on the verge of exceeding those in the U.S. for the first time since 2009. Strategists at UBS Group AG and Citigroup Inc. are recommending trades that will profit if they keep surging.

Delicate Balance

All the same, the ECB will have to maintain a delicate balance between growth and inflation as war in Ukraine rages on. Euro-area policy makers’ measured approach to policy normalization contrasts with peers at the Federal Reserve, who have already delivered a quarter-point rate hike this year and could add another 200 basis points by September, according to swaps pricing.

That divergence has weighed on the euro, which slid this month to a two-year low, has also been held back partly by uncertainty stemming from the French presidential election. The runoff vote between incumbent Emmanuel Macron and right-wing nationalist Marine Le Pen is due to be decided on Sunday.

ECB forecasts in March showed slower economic expansion and faster inflation in 2022, with price growth easing to just below the 2% target in 2024.

Louis Harreau, rates strategist at Credit Agricole SA, expects the war to trigger a recession in the region deep enough for the ECB to delay the first quarter-point hike until December. That said, updated inflation projections in June should “scare” all the policy makers, which Harreau says could convince the Governing Council to raise borrowing costs in September.

“The hawks are trying to push the ‘July or September or December’ rate hike, so that they are sure to get September,” he said.


Updated: 4-24-2022

Asia Bonds Lose $155 Billion As China Woes Add To Rates Pressure

* High-Grade Credit Spreads Widen At Least 5 Basis Points
* China Lockdown Fears Mean Equities, Yuan Tumble On Monday

Investors in Asian dollar debt have lost $155 billion over the past 9 months, pummeled by weakness in China in addition the epic global selloff in fixed income seen around the world as interest rates rise.

A $1 trillion benchmark of government and corporate notes has plummeted 12.1% from its peak last July, according to a Bloomberg index.

That’s the biggest-ever drawdown in the gauge based on data stretching back to 2009 and the latest example of pain in global fixed-income markets, after a gauge of euro high-grade notes last week recorded its worst peak-to-trough plunge on record.

The slump continued on Monday, with Asian investment-grade dollar credit spreads pushing out at least 5 basis points, on track for their biggest daily increase in about two weeks, a Bloomberg index shows.

The weakness comes as risk assets took a beating across the board. Authorities in Beijing, a city of more than 20 million people, raced to stop a Covid-19 outbreak, adding to concerns about a further slowdown in Chinese economic momentum. The offshore yuan fell to the lowest since April 2021.

“Some investors are wondering whether current levels represent attractive entry points” for Asian bonds, Goldman Sachs Group Inc. credit analysts Kenneth Ho and Chakki Ting wrote in note. “To us, macro uncertainties are likely to dominate.”

Chinese high-yield dollar bonds dropped as much as 2 cents on the dollar on Monday, according to credit traders, following a second consecutive week of declines in a Bloomberg index.

Bond markets have taken a beating around the world as investors price in a quicker pace of interest-rate hikes by the Federal Reserve, following comments by Chair Jerome Powell and other officials endorsing a 50 basis-point increase next month.

Investors turned overweight on Asia credit this month as concerns about outflows diminished, according to a recent report from Bank of America Corp. That suggests the tide could be turning.

“I would argue that the short-end of investment-grade credit actually has started to look attractive, looking at where the yields are,” Neeraj Seth, head of Asia credit at BlackRock Inc., told Bloomberg Television on Monday.


Updated: 4-25-2022

Bond Chaos In Argentina Sparks Traders’ Rush To Provincial Notes

* Cordoba, Mendoza And Chubut Yields Are Below Sovereign’s
* Investors Need Just A Few Amortizing Payments To Be Made Whole

Just two years after Argentina’s latest default, traders are all but sure the country is heading toward another debt disaster. But amid all the doom-and-gloom, a surprising trade has popped up that’s produced rich rewards.

Investors are snapping up securities issued by the provinces of Cordoba, Neuquen, Mendoza and Chubut, turning them into the nation’s top performers this month.

The rally has extended this year’s returns on some of the notes to as high as 13%, a somewhat remarkable feat given that dollar bonds globally suffered their worst quarter in almost six years. Sovereign debt has dropped 2.4% this month and 4.8% this year.

After the gains for the provinces, the securities now yield less than the sovereign, implying they’re less risky. That’s the opposite of most countries, where federal government bonds are usually seen as the safest option.

But junk-rated Argentina has dodgy finances and a track record of three defaults since the turn of the century, and investors are signaling they expect a fourth.

Another factor driving interest in the provinces is that their bonds amortize — that is, begin paying back principal before the final maturity. The theory is that if bondholders can hold on for just a few payments, they’ll be able to make their money back much faster than they could have with sovereign notes.

“Investors will get value from the cash flows,” said Juan Manuel Pazos, an analyst at TPCG Valores in Buenos Aires. “History shows that provincial defaults only happen after the sovereign defaults, not before. So it made no sense for provinces to have a higher, steeper probability of default than the sovereign.”

To be sure, buying the junk-rated provincial bonds isn’t for the faint of heart given the high probability the federal government will default over the next few years. Sovereign defaults in the past have been followed by missed payments by many of the provinces months later.

“The risk is still skewed to the downside,” said Ezequiel Zambaglione, an analyst at Balanz Capital Valores in Buenos Aires. “Revenue is almost 100% correlated with the sovereign, and spending or potential restructuring decisions are highly affected by politics.”

Investors seem all but certain that Argentina will default after 2024, when its debt payments are set to increase significantly. Despite a program with the International Monetary Fund to reduce a yawning fiscal deficit and reduce money printing from the central bank, they see inflation and a weakening currency eroding the country’s ability to pay and impeding its return to international markets.

But even if a default will be hard to avoid, the provinces have a track record of offering better restructuring terms than the sovereign. While the federal government’s $65 billion debt workout two years ago left investors with about 55 cents on the dollar, some provinces offered deals worth as much as 80 cents.


Mendoza’s 2029 bonds, which begin amortizing in March, have climbed 3.6 cents this month to 70.2 cents on the dollar, while oil-backed notes from the southern province of Chubut that begin paying principal this month have jumped 4.4 cents to 81.5 cents on the dollar.

Bonds from Cordoba province due in 2027 have also climbed more than 4 cents in April to 70 cents on the dollar.

The province, which restructured its notes last year without missing payments, also boasts the nation’s top performing government notes, according to Bloomberg’s Emerging Markets Index, returning 13% year to date.

The outperformance is a result of provinces like Cordoba and Mendoza being more fiscally sound than the national government, according to Nathalie Marshik, a managing director for fixed income at Stifel Nicolaus & Co.

“It’s a combination of the sovereign being a mess and the provinces having better balance sheets,” Marshik said. “It’s creating some demand.”


Updated: 4-26-2022

Real Yields Wade Toward Positive Territory, Denting Stocks (#GotBitcoin)

The rise of inflation-adjusted bond yields has hit some of Wall Street’s more speculative bets.

Yields on government bonds are catching up with expected inflation after years of lagging behind it, a threat to the speculative stock-market bets that proliferated in the era of rock-bottom rates and economic stimulus.

Bond yields that trail inflation push investors to seek an alternative; many found it in the stock market, powering a surge in risky assets.

But now the yield on 10-year Treasury notes is losing investors less and less money after adjusting for inflation. One gauge, the yield on the 10-year Treasury inflation-protected security, or TIPS, closed April 19 at 0%, according to Tradeweb.

That was the first time it wasn’t negative since March 2020, when global central banks slashed rates to support economies thrown into shock by the coronavirus pandemic. (The yield has drifted lower in recent days and closed Monday at about minus 0.10%, according to FactSet.)

Traders closely track TIPS yields because they offer a measure of financial conditions, showing whether borrowing costs are rising or falling for businesses and consumers when accounting for the effects of inflation expectations.

Holders of TIPS are compensated as the consumer-price index rises, ending up with the same return as holders of ordinary Treasurys if annual inflation matches the difference between the two yields.

While TIPS yield rise signals improving returns for bonds and a return to more normal growth and inflation as the Federal Reserve starts raising interest rates, it has hurt many highfliers of the pandemic era.

Often known as real yields, the yields on TIPS fell deeply negative at the start of the pandemic, meaning investors were guaranteed to lose money on an inflation-adjusted basis if they held the bonds to maturity. That helped power a surge in stocks by pushing investors toward riskier assets for better returns.

Now analysts expect that time to end, with central banks pulling back from their efforts to stimulate economic growth by holding rates ultralow and buying bonds. Many now expect the Fed to fight inflation with a series of rapid rate increases, including a half-percentage point move next month.

The rise in real yields is increasing the appeal of relatively safe investments, like government debt, while hurting the value of startups and companies with profits expected years in the future. The S&P 500 is on pace for its worst April performance since 1970, when it fell 9.1%, according to Dow Jones Market Data.

“We witnessed real rates explode higher, almost touching positive territory in the 10-year space, leaving equities extremely vulnerable,” said Brian Bost, co-head of equity derivatives at Barclays. “‘There is no alternative’ is no longer a justification to hide out in equities.”

Bonds have slumped this year, in a move that was faster than investors expected. The yield on the benchmark 10-year Treasury is approaching 3% for the first time since 2018. Interest-rate derivatives show that investors expect the Fed to increase its benchmark rate from its current level between 0.25% and 0.5% to just above 3% next year.

“We went from not hiking until 2023 to the Fed hiking as much as 300 basis points in 2022. It is really been a cycle on steroids,” said Michael de Pass, global head of U.S. Treasury trading at Citadel Securities.

That rapid shift in expectations has dented shares of low-profit tech companies and speculative wagers including Cathie Wood’s flagship ARK Innovation exchange-traded fund. The ETF targets companies it believes offer the greatest potential for innovation such as Zoom Video Communications Inc. and Coinbase Global Inc.

It gained popularity in 2020 when the Fed cut rates and investors chased high returns in riskier places. Known by its ticker ARKK, the fund has plunged 20% since the beginning of April, bringing its year-to-date decline to 44%, as of Monday.

Rising rates increase corporate borrowing costs and offer investors an alternative means of earning decent returns, which can hurt stocks generally. But the effect tends to be larger on so-called growth stocks, because investors deem uncertain future profits less valuable when they can get more guaranteed income from Treasurys.

“For the first time in a while fixed income probably looks attractive relative to riskier assets like the stock market,” said Lisa Hornby, head of U.S. multi sector fixed income at Schroders.

Ms. Hornby said rates could still move higher depending on coming inflation data. “I think we have priced in 80 percent of the move. Does that mean we are at peak yields? Probably not, but we have done a lot of the work.”

Wall Street strategists note that real yields remain low by conventional standards and have room to rise as the Fed lifts rates and inflation moderates. Many remain confident that a steady climb can avoid significantly disrupting companies or share prices.

“They are still extremely low from a historical perspective, which suggests the Fed may have more work to do in tightening financial conditions before higher real rates start to have a material impact on business activity,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities.

Updated: 5-1-2022

Biggest Treasury Buyer Outside U.S. Quietly Selling Billions

* Japanese Investors Can Find Good Debt Opportunities In Europe
* Rising Currency Hedging Costs And Fed Hikes Deter Inflows

In times of Treasury turmoil, the biggest investor outside American soil has historically lent a helping hand. Not this time round.

Japanese institutional managers — known for their legendary U.S. debt buying sprees in recent decades — are now fueling the great bond selloff just as the Federal Reserve pares its $9 trillion balance sheet.

Estimates from BMO Capital Markets based on the most recent data show the largest overseas holder of Treasuries has offloaded almost $60 billion over the past three months. While that may be small change relative to the Japan’s $1.3 trillion stockpile, the divestment threatens to grow.

That’s because the monetary path between the U.S. and the Asian nation is diverging ever more, the yen is plumbing 20-year lows and market volatility stateside is breaking out. All that is ramping up currency-hedging costs and completely offsetting the appeal of higher nominal U.S. yields, especially among large life insurers.

The upshot: Japanese accounts are contributing to the historic Treasury rout and may not return en masse until the benchmark 10-year yield trades firmly above 3%. In fact, near-zero-yielding bonds at home look ever-more appealing even as U.S. debt offers some of the highest rates in years.

“It’s a significant amount of selling and on par with what we saw in early 2017 from Japan,” said Ben Jeffery, BMO’s rates strategist.

While an aggressive Fed tightening cycle to combat inflation could result in multiple 50 basis-point hikes in the coming months, the Bank of Japan remains locked in endless stimulus. That’s weakening the yen and upending the economics of buying Treasuries even as the 10-year Japanese government bond remains capped around 0.25%.

While 10-year U.S. yields traded a whisker away from 3% in New York trading, buyers who pay to protect against fluctuations in the yen-dollar exchange rate see their effective yields dwindle to just 1.3%. That’s because hedging costs have ballooned to 1.66 percentage points, a level not seen since early 2020 when the global demand for dollars spiked in the pandemic rout.

A year ago the Treasury benchmark was offering a similar yield, when accounting for the cost of protecting against moves in the exchange rate thanks to a modest 32 basis-point hedging expense.

“Hedge costs are the issue for investing in U.S. Treasuries,” said Eiichiro Miura, general manager of the fixed-income department at Nissay Asset Management Corp.

Fed tightening cycles and the associated market volatility have tempered Japanese buying of Treasuries in the past. But in this cycle, the high level of uncertainty surrounding U.S. inflation and interest-rate policy may trigger an extended absence. At the same time, Japanese traders returning from the Golden Week holiday have other offshore options as euro-hedging costs remain near the one-year average.

“In the span of next six months or so, investing in Europe is better than the U.S. as hedge costs are likely to be low,” said Tatsuya Higuchi, executive chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co. “Among the euro bonds, Spain, Italy or France look appealing given the spreads.”

Typically, Japanese buying has favored intermediate sectors of the Treasury curve from five- to 10-year notes, while life insurers and pension funds have focused on 30-year bonds. But hopes that the Treasury market would see long-end buying in the new financial year that began in April have been dashed as some big life insurers rethink their exposure to overseas debt, given currency volatility spurred in large part by the hawkish monetary shift at the U.S. central bank.

“The Fed is being super aggressive,” said John Madziyire, portfolio manager at Vanguard Group Inc. “Are you really going to buy when Treasuries will probably get to more attractive levels?”

One broad Treasury index is already sitting on a more than 8% loss so far this year. Much now rests on whether the 10-year can consolidate in a range of 2.80% to 3.10% this month once the upcoming Fed meeting is absorbed by the market along with quarterly debt sales from the U.S. Treasury. It briefly exceeded 3% Monday for the first time since 2018.

“Japanese investors will wait for some stabilization in long-dated yields before they sense a buying opportunity,” said George Goncalves, head of macro strategy at MUFG. “If the 10-year settles during May, that will help attract buyers and at those yield levels you are getting compensated now.”

Updated: 5-2-2022

Treasury 30-Year Yield Climbs Past 3% Ahead of Fed Rate Decision

* U.S. 10-Year TIPS Yield Surges Above 0.17%, Highest Since 2020
* Signals Tighter Financial Conditions Before Fed Meeting

Selling pressure in Treasuries intensified on Monday, driving the 10-year yield to a more than three-year high, as investors brace for the Federal Reserve’s biggest interest-rate hike since 2000.

The yield on the 10-year note on Monday climbed as much as 7.5 basis points, cracking the 3% mark for the first time since December 2018. The rise in long-dated yields is tightening financial conditions by triggering an increase in borrowing costs for consumer and corporate loans as well.

That’s reflected in a 18 basis point rise in the yield on 10-year inflation-adjusted Treasuries above 0.17%, the highest above zero since the early months of the pandemic, as falling commodity prices eroded demand for the securities.

The conclusion of the central bank’s meeting on Wednesday is raising the risk of another volatile week in the markets. The Fed is widely expected to increase its key benchmark rate by a half-percentage point and leave the door open for further hikes of that magnitude this year.

It will also provide an update when it will start to reduce its bond holdings, a step that will likely pull tens of billions of dollars from the market each month as it allows securities to mature.

“Investors are getting defensive on duration and selling the market ahead of the balance sheet announcement by the Fed,” said John Brady, managing director at RJ O’Brien. “The Fed is clearly headed for a new policy regime now, one where aggressive short-end interest rate hikes will be accompanied by a bond-runoff program that is twice as large as it was in 2017/2018.”

The 30-year bond yield rose as much as 7 basis points to 3.07% Monday, the highest since March 2019. The policy-sensitive two-year rate was up 3 basis points at 2.75%, resulting in a modestly steeper curve.

The 10-year TIPS yield, called a real yield because it represents the rate investors will accept when compensated for inflation, went negative in early 2020 and remained below zero except briefly during the market mayhem that March.

A negative real interest rate is a sign of extremely easy financial conditions, since the expected rise in prices would be more than enough to cover the cost of borrowing.

The rise in real yields was accompanied by lower market expectations of inflation, a key area of focus for the Fed. The 10-year breakeven was lower by 12 basis points at 2.82%, and extended its drop from its all-time peak of 3.04% last month.

The selling pressure in Treasuries on Monday comes after the bond market registered back-to-back monthly losses of 3.1% in both March and April. Investors are left waiting to see when inflation is showing signs of having peaked and how much the higher rates are cooling down the economy.

“While the Federal Reserve has been ratcheting up its hawkish rhetoric on interest rates in recent months, it will likely begin to recognize the danger of a too-aggressive monetary policy when fading fiscal stimulus and a high dollar are both already applying the brakes to the economy,” said David Kelly, chief global strategist at JPMorgan Asset Management in a note.


10-Year Treasury Yield Hits 3% For First Time Since 2018

Prices for Treasurys, corporate bonds, municipal debt have slumped in response to Federal Reserve moves to rein in inflation.

The worst bond rout in decades hit a new milestone Monday, with the yield on the 10-year Treasury reaching 3% for the first time since late 2018.

The yield on the benchmark 10-year Treasury note, which rises when bond prices fall, surged at the start of U.S. trading and reached as high as 3.008% in the afternoon, as traders braced for the outcome of this week’s Federal Reserve meeting. It then slipped below 3% to settle at 2.995%, according to Tradeweb, up from 2.885% Friday.

A reference for borrowing costs on everything from mortgages to student loans, the yield last closed above 3% in November 2018 and has jumped from 1.496% at the end of last year.

Prices for Treasurys, corporate bonds and municipal debt have slumped this year in response to the Fed’s moves to raise interest rates in an effort to rein in inflation. The Bloomberg U.S. Aggregate bond index—largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities—returned minus 9.5% this year as of April 29.

“It’s been a pretty bruising couple of months,” said Nick Hayes, head of total return and fixed income asset allocation at AXA Investment Managers.

Yields on Treasurys largely reflect investors’ expectations for short-term interest rates over the life of a bond. Rising yields are often associated with a strengthening economy because faster growth and a tighter labor market can lead central banks to crack down on inflation.

In this case, the labor market is extremely tight and inflation is running at its fastest pace in decades, prompting the Fed to signal a rapid series of interest-rate increases and sparking a steep climb in yields that has sent shock waves through markets.

Investors are unlikely to get much relief until inflation concerns abate, a wild card when Covid-19 outbreaks in Asia are pressuring global supply chains and the war in Ukraine is driving up commodity prices, said Zachary Griffiths, senior macro strategist at Wells Fargo.

“There’s a lot of uncertainty with respect to inflation, monetary policy, geopolitics,” Mr. Griffiths said. “Even as the Fed has signaled they are going to tighten significantly it hasn’t really seemed to bring down inflation expectations yet, not durably.”

Fed officials increased interest rates by a quarter-percentage-point in March. The Fed’s latest policy-meeting minutes suggest the central bank could raise rates by a half-percentage point on Wednesday and begin reducing its $9 trillion asset portfolio.

That may have surprised some in the market who expected a less aggressive pace, Mr. Griffiths said.

Ten-year Treasury yields were well above 3% for most of the past half-century, exceeding 15% in the 1980s, according to Ryan ALM & Tradeweb ICE. But in the past decade they have ended the day above 3% only 64 times, reflecting a period that until recently was marked by sluggish growth and inflation.

While today’s bond yields remain low by historical standards, they still represent a remarkable turnaround from the early days of the Covid-19 pandemic, when the 10-year yield dropped as low as 0.5%.

Investors then saw little reason to worry about interest-rate increases. Not only was the economy in a precarious position, Fed officials were reassessing the way they conducted monetary policy, pledging to be more cautious about raising rates after many years in which inflation had remained mostly stuck below their 2% annual target.

Yields did start to rise in late 2020 in response to the development of effective Covid-19 vaccines and got another boost when Democrats won full control of Congress, setting the stage for more fiscal stimulus.

Still, the 10-year yield topped out at around 1.75% early last year, and spent much of 2021 in a gradual decline even as inflation started surging. Reassured by Fed officials that inflation was largely transitory, investors, as late as December, only anticipated a few quarter-percentage point rate increases in 2022.

Since then, however, bonds have taken a beating, as inflation has remained stubbornly high and analysts have kept ratcheting up their expectations for rate-increases—raising the bar each time Treasurys have priced in the most aggressive previous forecasts.

As it stands, interest-rate derivatives show that investors expect the Fed to increase its benchmark federal-funds rate from its current level between 0.25% and 0.5% to just above 3% next year.

That suggests a long journey ahead, in which a lot in the economy could go wrong including further declines in riskier assets such as stocks, causing the Fed to pause its tightening efforts.

Already, the jump in yields has led to sharply higher borrowing costs for consumers—with 30-year mortgage rates climbing above 5%—and contributed to stock declines that have sent the S&P 500 down about 13% on the year.

Still, many analysts think that the fed-funds rate could have to climb well above 3% to subdue inflation, suggesting that the bond selloff could still have room to run.

One point made by such analysts is that inflation expectations over the next decade are still elevated, even with the anticipated Fed tightening. That means that so-called real, or inflation-adjusted, Treasury yields remain low by even recent historical standards, potentially providing an incentive for businesses to borrow and invest despite the sharp rise in nominal yields.

The yield on the 10-year Treasury inflation-protected security—a proxy for real yields—stood Monday afternoon at around 0.16%, according to Tradeweb. That was up from minus 1.11% at the end of last year but still well below the nearly 1.2% level they reached in late 2018.



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Bitcoin’s Volatility Should Burn Investors. It Hasn’t

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The Ultimate Resource On “PriFi” Or Private Finance

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Iran’s Central Banks Acquires Bitcoin Even Though Lagarde Says Central Banks Will Not Hold Bitcoin

Bitcoin To Come To America’s Oldest Bank, BNY Mellon

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Investors Piling Into Overvalued Crypto Funds Risk A Painful Exit

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Miami Mayor Says City Employees Should Be Able To Take Their Salaries In Bitcoin

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Harvard, Yale, Brown Endowments Have Been Buying Bitcoin For At Least A Year

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To Understand Bitcoin, Just Think of It As A Faith-Based Asset

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Andreas Antonopoulos And Others Debunk Bitcoin Double-Spend FUD

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Voyager Crypto App Review

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CoinLab Cuts Deal With Mt. Gox Trustee Over Bitcoin Claims

Bitcoin Slides Under $35K Despite Biden Unveiling $1.9 Trillion Stimulus

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Ex-Ripple CTO Can’t Remember Password To Access $240M In Bitcoin

Financial Advisers Are Betting On Bitcoin As A Hedge

ECB President Christine Lagarde (French Convict) Says, Bitcoin Enables “Funny Business.”

German Police Shut Down Darknet Marketplace That Traded Bitcoin

Bitcoin Miner That’s Risen 1,400% Says More Regulation Is Needed

Bitcoin Rebounds While Leaving Everyone In Dark On True Worth

UK Treasury Calls For Feedback On Approach To Cryptocurrency And Stablecoin Regulation

What Crypto Users Need Know About Changes At The SEC

Where Does This 28% Bitcoin Price Drop Rank In History? Not Even In The Top 5

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Retail Has Arrived As Paypal Clears $242M In Crypto Sales Nearly Double The Previous Record

Bitcoin’s Slide Dents Price Momentum That Dwarfed Everything

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The Case For And Against Investing In Bitcoin

Bitcoin’s Wild Weekends Turn Efficient Market Theory Inside Out

Mega-Bullish News For Bitcoin As Elon Musk Says, “Pay Me In Bitcoin” And Biden Says, “Ignore Budget Deficits”!

Bitcoin Price Briefly Surpasses Market Cap Of Tencent

Broker Touts Exotic Bitcoin Bet To Squeeze Income From Crypto

Broker Touts Exotic Bitcoin Bet To Squeeze Income From Crypto

Tesla’s Crypto-Friendly CEO Is Now The Richest Man In The World

Crypto Market Cap Breaks $1 Trillion Following Jaw-Dropping Rally

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Crypto Users Donate $400K To Julian Assange Defense As Mexico Proposes Asylum

Grayscale Ethereum Trust Fell 22% Despite Rally In Holdings

Bitcoin’s Bulls Should Fear Its Other Scarcity Problem

Ether Follows Bitcoin To Record High Amid Dizzying Crypto Rally

Retail Investors Are Largely Uninvolved As Bitcoin Price Chases $40K

Bitcoin Breaches $34,000 As Rally Extends Into New Year

Social Media Interest In Bitcoin Hits All-Time High

Bitcoin Price Quickly Climbs To $31K, Liquidating $100M Of Shorts

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FinCEN Wants US Citizens To Disclose Offshore Crypto Holdings of $10K+

Governments Will Start To Hodl Bitcoin In 2021

Crypto-Linked Stocks Extend Rally That Produced 400% Gains

‘Bitcoin Liquidity Crisis’ — BTC Is Becoming Harder To Buy On Exchanges, Data Shows

Bitcoin Looks To Gain Traction In Payments

BTC Market Cap Now Over Half A Trillion Dollars. Major Weekly Candle Closed!!

Elon Musk And Satoshi Nakamoto Making Millionaires At Record Pace

Binance Enables SegWit Support For Bitcoin Deposits As Adoption Grows

Santoshi Nakamoto Delivers $24.5K Christmas Gift With Another New All-Time High

Bitcoin’s Rally Has Already Outlasted 2017’s Epic Run

Gifting Crypto To Loved Ones This Holiday? Educate Them First

Scaramucci’s SkyBridge Files With SEC To Launch Bitcoin Fund

Samsung Integrates Bitcoin Wallets And Exchange Into Galaxy Phones

HTC Smartphone Will Run A Full Bitcoin Node (#GotBitcoin?)

HTC’s New 5G Router Can Host A Full Bitcoin Node

Bitcoin Miners Are Heating Homes Free of Charge

Bitcoin Miners Will Someday Be Incorporated Into Household Appliances

Musk Inquires About Moving ‘Large Transactions’ To Bitcoin

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Megan Thee Stallion Gives Away $1 Million In Bitcoin

CoinFLEX Sets Up Short-Term Lending Facility For Crypto Traders

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Bitcoin Shortage As Wall Street FOMO Turns BTC Whales Into ‘Plankton’

Bitcoin Tops $22,000 And Strategists Say Rally Has Further To Go

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Andreas M. Antonopoulos And Simon Dixon Say Don’t Buy Bitcoin!

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US Gov Is Bitcoin’s Last Remaining Adversary, Says Messari Founder

$1,200 US Stimulus Check Is Now Worth Almost $4,000 If Invested In Bitcoin

German Bank Launches Crypto Fund Covering Portfolio Of Digital Assets

World Governments Agree On Importance Of Crypto Regulation At G-7 Meeting

Why Some Investors Get Bitcoin So Wrong, And What That Says About Its Strengths

It’s Not About Data Ownership, It’s About Data Control, EFF Director Says

‘It Will Send BTC’ — On-Chain Analyst Says Bitcoin Hodlers Are Only Getting Stronger

Bitcoin Arrives On Wall Street: S&P Dow Jones Launching Crypto Indexes In 2021

Audio Streaming Giant Spotify Is Looking Into Crypto Payments

BlackRock (Assets Under Management $7.4 Trillion) CEO: Bitcoin Has Caught Our Attention

Bitcoin Moves $500K Around The Globe Every Second, Says Samson Mow

Pomp Talks Shark Tank’s Kevin O’leary Into Buying ‘A Little More’ Bitcoin

Bitcoin Is The Tulipmania That Refuses To Die

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Biden Should Integrate Bitcoin Into Us Financial System, Says Niall Ferguson

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Bitcoin Price Sets New Record High Above $19,783

You Call That A Record? Bitcoin’s November Gains Are 3x Stock Market’s

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Guggenheim Fund ($295 Billion Assets Under Management) Reserves Right To Put Up To 10% In Bitcoin Trust!

Exchanges Outdo Auctions For Governments Cashing In Criminal Crypto, Says Exec

Coinbase CEO: Trump Administration May ‘Rush Out’ Burdensome Crypto Wallet Rules

Bitcoin Plunges Along With Other Coins Providing For A Major Black Friday Sale Opportunity

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‘Bitcoin Tuesday’ To Become One Of The Largest-Ever Crypto Donation Events

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Bitcoin Trades Again Near Record, Driven By New Group Of Buyers

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Bitcoin Price Doubles Since The Halving, With Just 3.4M Bitcoin Left For Buyers

First Company-Sponsored Bitcoin Retirement Plans Launched In US

Poker Players Are Enhancing Winnings By Cashing Out In Bitcoin

Crypto-Friendly Brooks Gets Nod To Serve 5-Year Term Leading Bank Regulator

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The Dark Future Where Payments Are Politicized And Bitcoin Wins

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US Company Now Lets Travelers Pay For Passports With Bitcoin

Billionaire Hedge Fund Investor Stanley Druckenmiller Says He Owns Bitcoin In CNBC Interview

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Bitcoin Is Back Trading Near Three-Year Highs

Bitcoin Transaction Fees Rise To 28-Month High As Hashrate Drops Amid Price Rally

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3 Reasons Why Bitcoin Price Suddenly Dropping Below $13,000 Isn’t Bearish

Bitcoin Resurgence Leaves Institutional Acceptance Unanswered

Bitcoin’s Rivalry With Gold Plus Millennial Interest Gives It ‘Considerable’ Upside Potential: JPMorgan

WordPress Content Can Now Be Timestamped On Ethereum

PayPal To Offer Crypto Payments Starting In 2021 (A-Z) (#GotBitcoin?)

As Bitcoin Approaches $13,000 It Breaks Correlation With Equities

Crypto M&A Surges Past 2019 Total As Rest of World Eclipses U.S. (#GotBitcoin?)

How HBCUs Are Prepping Black Students For Blockchain Careers

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Bennie Overton’s Story About Our Corrupt U.S. Judicial, Global Financial Monetary System And Bitcoin

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Mad Money’s Jim Cramer Will Invest 1% Of Net Worth In Bitcoin Says, “Gold Is Dangerous”

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Bitcoin (BTC) Ranks As World 6Th Largest Currency

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The Assets That Matter Most In Crypto (#GotBitcoin?)

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Bitcoin Community Highlights Double-Standard Applied Deutsche Bank Epstein Scandal

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An Israeli Blockchain Startup Claims It’s Invented An ‘Undo’ Button For BTC Transactions

After Years of Resistance, BitPay Adopts SegWit For Cheaper Bitcoin Transactions

US Appeals Court Allows Warrantless Search of Blockchain, Exchange Data

Central Bank Rate Cuts Mean ‘World Has Gone Zimbabwe’

This Researcher Says Bitcoin’s Elliptic Curve Could Have A Secret Backdoor

China Discovers 4% Of Its Reserves Or 83 Tons Of It’s Gold Bars Are Fake (#GotBitcoin?)

Former Legg Mason Star Bill Miller And Bloomberg Are Optimistic About Bitcoin’s Future

Yield Chasers Are Yield Farming In Crypto-Currencies (#GotBitcoin?)

Australia Post Office Now Lets Customers Buy Bitcoin At Over 3,500 Outlets

Anomaly On Bitcoin Sidechain Results In Brief Security Lapse

SEC And DOJ Charges Lobbying Kingpin Jack Abramoff And Associate For Money Laundering

Veteran Commodities Trader Chris Hehmeyer Goes All In On Crypto (#GotBitcoin?)

Activists Document Police Misconduct Using Decentralized Protocol (#GotBitcoin?)

Supposedly, PayPal, Venmo To Roll Out Crypto Buying And Selling (#GotBitcoin?)

Industry Leaders Launch PayID, The Universal ID For Payments (#GotBitcoin?)

Crypto Quant Fund Debuts With $23M In Assets, $2.3B In Trades (#GotBitcoin?)

The Queens Politician Who Wants To Give New Yorkers Their Own Crypto

Why Does The SEC Want To Run Bitcoin And Ethereum Nodes?

Trump Orders Treasury Secretary Steve Mnuchin To Destroy Bitcoin Just Like They Destroyed The Traditional Economy

US Drug Agency Failed To Properly Supervise Agent Who Stole $700,000 In Bitcoin In 2015

Layer 2 Will Make Bitcoin As Easy To Use As The Dollar, Says Kraken CEO

Bootstrapping Mobile Mesh Networks With Bitcoin Lightning

Nevermind Coinbase — Big Brother Is Already Watching Your Coins (#GotBitcoin?)

BitPay’s Prepaid Mastercard Launches In US to Make Crypto Accessible (#GotBitcoin?)

Germany’s Deutsche Borse Exchange To List New Bitcoin Exchange-Traded Product

‘Bitcoin Billionaires’ Movie To Tell Winklevoss Bros’ Crypto Story

US Pentagon Created A War Game To Fight The Establishment With BTC (#GotBitcoin?)

JPMorgan Provides Banking Services To Crypto Exchanges Coinbase And Gemini (#GotBitcoin?)

Bitcoin Advocates Cry Foul As US Fed Buying ETFs For The First Time

Final Block Mined Before Halving Contained Reminder of BTC’s Origins (#GotBitcoin?)

Meet Brian Klein, Crypto’s Own ‘High-Stakes’ Trial Attorney (#GotBitcoin?)

3 Reasons For The Bitcoin Price ‘Halving Dump’ From $10K To $8.1K

Bitcoin Outlives And Outlasts Naysayers And First Website That Declared It Dead Back In 2010

Hedge Fund Pioneer Turns Bullish On Bitcoin Amid ‘Unprecedented’ Monetary Inflation

Antonopoulos: Chainalysis Is Helping World’s Worst Dictators & Regimes (#GotBitcoin?)

Survey Shows Many BTC Holders Use Hardware Wallet, Have Backup Keys (#GotBitcoin?)

Iran Ditches The Rial Amid Hyperinflation As Localbitcoins Seem To Trade Near $35K

Buffett ‘Killed His Reputation’ by Being Stupid About BTC, Says Max Keiser (#GotBitcoin?)

Meltem Demirors: “Bitcoin Is Not A F*Cking Systemic Hedge If You Hold Your Bitcoin At A Financial Institution”

Blockfolio Quietly Patches Years-Old Security Hole That Exposed Source Code (#GotBitcoin?)

Bitcoin Won As Store of Value In Coronavirus Crisis — Hedge Fund CEO

Decentralized VPN Gaining Steam At 100,000 Users Worldwide (#GotBitcoin?)

Crypto Exchange Offers Credit Lines so Institutions Can Trade Now, Pay Later (#GotBitcoin?)

Zoom Develops A Cryptocurrency Paywall To Reward Creators Video Conferencing Sessions (#GotBitcoin?)

Bitcoin Startup And Major Bitcoin Cash Partner To Shut Down After 6-Year Run

Open Interest In CME Bitcoin Futures Rises 70% As Institutions Return To Market

Square’s Users Can Route Stimulus Payments To BTC-Friendly Cash App

$1.1 Billion BTC Transaction For Only $0.68 Demonstrates Bitcoin’s Advantage Over Banks

Bitcoin Could Become Like ‘Prison Cigarettes’ Amid Deepening Financial Crisis

Bitcoin Holds Value As US Debt Reaches An Unfathomable $24 Trillion

How To Get Money (Crypto-currency) To People In An Emergency, Fast

US Intelligence To Study What Would Happen If U.S. Dollar Lost Its Status As World’s Reserve Currency (#GotBitcoin?)

Bitcoin Miner Manufacturers Mark Down Prices Ahead of Halving

Privacy-Oriented Browsers Gain Traction (#GotBitcoin?)

‘Breakthrough’ As Lightning Uses Web’s Forgotten Payment Code (#GotBitcoin?)

Bitcoin Starts Quarter With Price Down Just 10% YTD vs U.S. Stock’s Worst Quarter Since 2008

Bitcoin Enthusiasts, Liberal Lawmakers Cheer A Fed-Backed Digital Dollar

Crypto-Friendly Bank Revolut Launches In The US (#GotBitcoin?)

The CFTC Just Defined What ‘Actual Delivery’ of Crypto Should Look Like (#GotBitcoin?)

Crypto CEO Compares US Dollar To Onecoin Scam As Fed Keeps Printing (#GotBitcoin?)

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Bitcoin, Not Governments Will Save the World After Crisis, Tim Draper Says

Crypto Analyst Accused of Photoshopping Trade Screenshots (#GotBitcoin?)

QE4 Begins: Fed Cuts Rates, Buys $700B In Bonds; Bitcoin Rallies 7.7%

Mike Novogratz And Andreas Antonopoulos On The Bitcoin Crash

Amid Market Downturn, Number of People Owning 1 BTC Hits New Record (#GotBitcoin?)

Fatburger And Others Feed $30 Million Into Ethereum For New Bond Offering (#GotBitcoin?)

Pornhub Will Integrate PumaPay Recurring Subscription Crypto Payments (#GotBitcoin?)

Intel SGX Vulnerability Discovered, Cryptocurrency Keys Threatened

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Countries That First Outlawed Crypto But Then Embraced It (#GotBitcoin?)

Bitcoin Maintains Gains As Global Equities Slide, US Yield Hits Record Lows

HTC’s New 5G Router Can Host A Full Bitcoin Node

India Supreme Court Lifts RBI Ban On Banks Servicing Crypto Firms (#GotBitcoin?)

Analyst Claims 98% of Mining Rigs Fail to Verify Transactions (#GotBitcoin?)

Blockchain Storage Offers Security, Data Transparency And immutability. Get Over it!

Black Americans & Crypto (#GotBitcoin?)

Coinbase Wallet Now Allows To Send Crypto Through Usernames (#GotBitcoin)

New ‘Simpsons’ Episode Features Jim Parsons Giving A Crypto Explainer For The Masses (#GotBitcoin?)

Crypto-currency Founder Met With Warren Buffett For Charity Lunch (#GotBitcoin?)

Witches Love Bitcoin

Bitcoin’s Potential To Benefit The African And African-American Community

Coinbase Becomes Direct Visa Card Issuer With Principal Membership

Bitcoin Achieves Major Milestone With Half A Billion Transactions Confirmed

Jill Carlson, Meltem Demirors Back $3.3M Round For Non-Custodial Settlement Protocol Arwen

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Bitcoiners Are Now Into Fasting. Read This Article To Find Out Why

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Billionaire Investor Tim Draper: If You’re a Millennial, Buy Bitcoin

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US Deficit Will Be At Least 6 Times Bitcoin Market Cap — Every Year (#GotBitcoin?)

Central Banks Warm To Issuing Digital Currencies (#GotBitcoin?)

Meet The Crypto Angel Investor Running For Congress In Nevada (#GotBitcoin?)

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H.R.5635 – Virtual Currency Tax Fairness Act of 2020 ($200.00 Limit) 116th Congress (2019-2020)

Adam Back On Satoshi Emails, Privacy Concerns And Bitcoin’s Early Days

The Prospect of Using Bitcoin To Build A New International Monetary System Is Getting Real

How To Raise Funds For Australia Wildfire Relief Efforts (Using Bitcoin And/Or Fiat )

Former Regulator Known As ‘Crypto Dad’ To Launch Digital-Dollar Think Tank (#GotBitcoin?)

Currency ‘Cold War’ Takes Center Stage At Pre-Davos Crypto Confab (#GotBitcoin?)

A Blockchain-Secured Home Security Camera Won Innovation Awards At CES 2020 Las Vegas

Bitcoin’s Had A Sensational 11 Years (#GotBitcoin?)

Sergey Nazarov And The Creation Of A Decentralized Network Of Oracles

Google Suspends MetaMask From Its Play App Store, Citing “Deceptive Services”

Christmas Shopping: Where To Buy With Crypto This Festive Season

At 8,990,000% Gains, Bitcoin Dwarfs All Other Investments This Decade

Coinbase CEO Armstrong Wins Patent For Tech Allowing Users To Email Bitcoin

Bitcoin Has Got Society To Think About The Nature Of Money

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Dissidents And Activists Have A Lot To Gain From Bitcoin, If Only They Knew It (#GotBitcoin?)

At A Refugee Camp In Iraq, A 16-Year-Old Syrian Is Teaching Crypto Basics

Bitclub Scheme Busted In The US, Promising High Returns From Mining

Bitcoin Advertised On French National TV

Germany: New Proposed Law Would Legalize Banks Holding Bitcoin

How To Earn And Spend Bitcoin On Black Friday 2019

The Ultimate List of Bitcoin Developments And Accomplishments

Charities Put A Bitcoin Twist On Giving Tuesday

Family Offices Finally Accept The Benefits of Investing In Bitcoin

An Army Of Bitcoin Devs Is Battle-Testing Upgrades To Privacy And Scaling

Bitcoin ‘Carry Trade’ Can Net Annual Gains With Little Risk, Says PlanB

Max Keiser: Bitcoin’s ‘Self-Settlement’ Is A Revolution Against Dollar

Blockchain Can And Will Replace The IRS

China Seizes The Blockchain Opportunity. How Should The US Respond? (#GotBitcoin?)

Jack Dorsey: You Can Buy A Fraction Of Berkshire Stock Or ‘Stack Sats’

Bitcoin Price Skyrockets $500 In Minutes As Bakkt BTC Contracts Hit Highs

Bitcoin’s Irreversibility Challenges International Private Law: Legal Scholar

Bitcoin Has Already Reached 40% Of Average Fiat Currency Lifespan

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Unicef To Accept Donations In Bitcoin (#GotBitcoin?)

Former Prosecutor Asked To “Shut Down Bitcoin” And Is Now Face Of Crypto VC Investing (#GotBitcoin?)

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Bitcoin Developer Amir Taaki, “We Can Crash National Economies” (#GotBitcoin?)

Veteran Crypto And Stocks Trader Shares 6 Ways To Invest And Get Rich

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SEC Enters Settlement Talks With Alleged Fraudulent Firm Veritaseum (#GotBitcoin?)

Blockstream’s Samson Mow: Bitcoin’s Block Size Already ‘Too Big’

Attorneys Seek Bank Of Ireland Execs’ Testimony Against OneCoin Scammer (#GotBitcoin?)

OpenLibra Plans To Launch Permissionless Fork Of Facebook’s Stablecoin (#GotBitcoin?)

Tiny $217 Options Trade On Bitcoin Blockchain Could Be Wall Street’s Death Knell (#GotBitcoin?)

Class Action Accuses Tether And Bitfinex Of Market Manipulation (#GotBitcoin?)

Sharia Goldbugs: How ISIS Created A Currency For World Domination (#GotBitcoin?)

Bitcoin Eyes Demand As Hong Kong Protestors Announce Bank Run (#GotBitcoin?)

How To Securely Transfer Crypto To Your Heirs

‘Gold-Backed’ Crypto Token Promoter Karatbars Investigated By Florida Regulators (#GotBitcoin?)

Crypto News From The Spanish-Speaking World (#GotBitcoin?)

Financial Services Giant Morningstar To Offer Ratings For Crypto Assets (#GotBitcoin?)

‘Gold-Backed’ Crypto Token Promoter Karatbars Investigated By Florida Regulators (#GotBitcoin?)

The Original Sins Of Cryptocurrencies (#GotBitcoin?)

Bitcoin Is The Fraud? JPMorgan Metals Desk Fixed Gold Prices For Years (#GotBitcoin?)

Israeli Startup That Allows Offline Crypto Transactions Secures $4M (#GotBitcoin?)

[PSA] Non-genuine Trezor One Devices Spotted (#GotBitcoin?)

Bitcoin Stronger Than Ever But No One Seems To Care: Google Trends (#GotBitcoin?)

First-Ever SEC-Qualified Token Offering In US Raises $23 Million (#GotBitcoin?)

You Can Now Prove A Whole Blockchain With One Math Problem – Really

Crypto Mining Supply Fails To Meet Market Demand In Q2: TokenInsight

$2 Billion Lost In Mt. Gox Bitcoin Hack Can Be Recovered, Lawyer Claims (#GotBitcoin?)

Fed Chair Says Agency Monitoring Crypto But Not Developing Its Own (#GotBitcoin?)

Wesley Snipes Is Launching A Tokenized $25 Million Movie Fund (#GotBitcoin?)

Mystery 94K BTC Transaction Becomes Richest Non-Exchange Address (#GotBitcoin?)

A Crypto Fix For A Broken International Monetary System (#GotBitcoin?)

Four Out Of Five Top Bitcoin QR Code Generators Are Scams: Report (#GotBitcoin?)

Waves Platform And The Abyss To Jointly Launch Blockchain-Based Games Marketplace (#GotBitcoin?)

Bitmain Ramps Up Power And Efficiency With New Bitcoin Mining Machine (#GotBitcoin?)

Ledger Live Now Supports Over 1,250 Ethereum-Based ERC-20 Tokens (#GotBitcoin?)

Miss Finland: Bitcoin’s Risk Keeps Most Women Away From Cryptocurrency (#GotBitcoin?)

Artist Akon Loves BTC And Says, “It’s Controlled By The People” (#GotBitcoin?)

Ledger Live Now Supports Over 1,250 Ethereum-Based ERC-20 Tokens (#GotBitcoin?)

Co-Founder Of LinkedIn Presents Crypto Rap Video: Hamilton Vs. Satoshi (#GotBitcoin?)

Crypto Insurance Market To Grow, Lloyd’s Of London And Aon To Lead (#GotBitcoin?)

No ‘AltSeason’ Until Bitcoin Breaks $20K, Says Hedge Fund Manager (#GotBitcoin?)

NSA Working To Develop Quantum-Resistant Cryptocurrency: Report (#GotBitcoin?)

Custody Provider Legacy Trust Launches Crypto Pension Plan (#GotBitcoin?)

Vaneck, SolidX To Offer Limited Bitcoin ETF For Institutions Via Exemption (#GotBitcoin?)

Russell Okung: From NFL Superstar To Bitcoin Educator In 2 Years (#GotBitcoin?)

Bitcoin Miners Made $14 Billion To Date Securing The Network (#GotBitcoin?)

Why Does Amazon Want To Hire Blockchain Experts For Its Ads Division?

Argentina’s Economy Is In A Technical Default (#GotBitcoin?)

Blockchain-Based Fractional Ownership Used To Sell High-End Art (#GotBitcoin?)

Portugal Tax Authority: Bitcoin Trading And Payments Are Tax-Free (#GotBitcoin?)

Bitcoin ‘Failed Safe Haven Test’ After 7% Drop, Peter Schiff Gloats (#GotBitcoin?)

Bitcoin Dev Reveals Multisig UI Teaser For Hardware Wallets, Full Nodes (#GotBitcoin?)

Bitcoin Price: $10K Holds For Now As 50% Of CME Futures Set To Expire (#GotBitcoin?)

Bitcoin Realized Market Cap Hits $100 Billion For The First Time (#GotBitcoin?)

Stablecoins Begin To Look Beyond The Dollar (#GotBitcoin?)

Bank Of England Governor: Libra-Like Currency Could Replace US Dollar (#GotBitcoin?)

Binance Reveals ‘Venus’ — Its Own Project To Rival Facebook’s Libra (#GotBitcoin?)

The Real Benefits Of Blockchain Are Here. They’re Being Ignored (#GotBitcoin?)

CommBank Develops Blockchain Market To Boost Biodiversity (#GotBitcoin?)

SEC Approves Blockchain Tech Startup Securitize To Record Stock Transfers (#GotBitcoin?)

SegWit Creator Introduces New Language For Bitcoin Smart Contracts (#GotBitcoin?)

You Can Now Earn Bitcoin Rewards For Postmates Purchases (#GotBitcoin?)

Bitcoin Price ‘Will Struggle’ In Big Financial Crisis, Says Investor (#GotBitcoin?)

Fidelity Charitable Received Over $100M In Crypto Donations Since 2015 (#GotBitcoin?)

Would Blockchain Better Protect User Data Than FaceApp? Experts Answer (#GotBitcoin?)

Just The Existence Of Bitcoin Impacts Monetary Policy (#GotBitcoin?)

What Are The Biggest Alleged Crypto Heists And How Much Was Stolen? (#GotBitcoin?)

IRS To Cryptocurrency Owners: Come Clean, Or Else!

Coinbase Accidentally Saves Unencrypted Passwords Of 3,420 Customers (#GotBitcoin?)

Bitcoin Is A ‘Chaos Hedge, Or Schmuck Insurance‘ (#GotBitcoin?)

Bakkt Announces September 23 Launch Of Futures And Custody

Coinbase CEO: Institutions Depositing $200-400M Into Crypto Per Week (#GotBitcoin?)

Researchers Find Monero Mining Malware That Hides From Task Manager (#GotBitcoin?)

Crypto Dusting Attack Affects Nearly 300,000 Addresses (#GotBitcoin?)

A Case For Bitcoin As Recession Hedge In A Diversified Investment Portfolio (#GotBitcoin?)

SEC Guidance Gives Ammo To Lawsuit Claiming XRP Is Unregistered Security (#GotBitcoin?)

15 Countries To Develop Crypto Transaction Tracking System: Report (#GotBitcoin?)

US Department Of Commerce Offering 6-Figure Salary To Crypto Expert (#GotBitcoin?)

Mastercard Is Building A Team To Develop Crypto, Wallet Projects (#GotBitcoin?)

Canadian Bitcoin Educator Scams The Scammer And Donates Proceeds (#GotBitcoin?)

Amazon Wants To Build A Blockchain For Ads, New Job Listing Shows (#GotBitcoin?)

Shield Bitcoin Wallets From Theft Via Time Delay (#GotBitcoin?)

Blockstream Launches Bitcoin Mining Farm With Fidelity As Early Customer (#GotBitcoin?)

Commerzbank Tests Blockchain Machine To Machine Payments With Daimler (#GotBitcoin?)

Bitcoin’s Historical Returns Look Very Attractive As Online Banks Lower Payouts On Savings Accounts (#GotBitcoin?)

Man Takes Bitcoin Miner Seller To Tribunal Over Electricity Bill And Wins (#GotBitcoin?)

Bitcoin’s Computing Power Sets Record As Over 100K New Miners Go Online (#GotBitcoin?)

Walmart Coin And Libra Perform Major Public Relations For Bitcoin (#GotBitcoin?)

Judge Says Buying Bitcoin Via Credit Card Not Necessarily A Cash Advance (#GotBitcoin?)

Poll: If You’re A Stockowner Or Crypto-Currency Holder. What Will You Do When The Recession Comes?

1 In 5 Crypto Holders Are Women, New Report Reveals (#GotBitcoin?)

Beating Bakkt, Ledgerx Is First To Launch ‘Physical’ Bitcoin Futures In Us (#GotBitcoin?)

Facebook Warns Investors That Libra Stablecoin May Never Launch (#GotBitcoin?)

Government Money Printing Is ‘Rocket Fuel’ For Bitcoin (#GotBitcoin?)

Bitcoin-Friendly Square Cash App Stock Price Up 56% In 2019 (#GotBitcoin?)

Safeway Shoppers Can Now Get Bitcoin Back As Change At 894 US Stores (#GotBitcoin?)

TD Ameritrade CEO: There’s ‘Heightened Interest Again’ With Bitcoin (#GotBitcoin?)

Venezuela Sets New Bitcoin Volume Record Thanks To 10,000,000% Inflation (#GotBitcoin?)

Newegg Adds Bitcoin Payment Option To 73 More Countries (#GotBitcoin?)

China’s Schizophrenic Relationship With Bitcoin (#GotBitcoin?)

More Companies Build Products Around Crypto Hardware Wallets (#GotBitcoin?)

Bakkt Is Scheduled To Start Testing Its Bitcoin Futures Contracts Today (#GotBitcoin?)

Bitcoin Network Now 8 Times More Powerful Than It Was At $20K Price (#GotBitcoin?)

Crypto Exchange BitMEX Under Investigation By CFTC: Bloomberg (#GotBitcoin?)

“Bitcoin An ‘Unstoppable Force,” Says US Congressman At Crypto Hearing (#GotBitcoin?)

Bitcoin Network Is Moving $3 Billion Daily, Up 210% Since April (#GotBitcoin?)

Cryptocurrency Startups Get Partial Green Light From Washington

Fundstrat’s Tom Lee: Bitcoin Pullback Is Healthy, Fewer Searches Аre Good (#GotBitcoin?)

Bitcoin Lightning Nodes Are Snatching Funds From Bad Actors (#GotBitcoin?)

The Provident Bank Now Offers Deposit Services For Crypto-Related Entities (#GotBitcoin?)

Bitcoin Could Help Stop News Censorship From Space (#GotBitcoin?)

US Sanctions On Iran Crypto Mining — Inevitable Or Impossible? (#GotBitcoin?)

US Lawmaker Reintroduces ‘Safe Harbor’ Crypto Tax Bill In Congress (#GotBitcoin?)

EU Central Bank Won’t Add Bitcoin To Reserves — Says It’s Not A Currency (#GotBitcoin?)

The Miami Dolphins Now Accept Bitcoin And Litecoin Crypt-Currency Payments (#GotBitcoin?)

Trump Bashes Bitcoin And Alt-Right Is Mad As Hell (#GotBitcoin?)

Goldman Sachs Ramps Up Development Of New Secret Crypto Project (#GotBitcoin?)

Blockchain And AI Bond, Explained (#GotBitcoin?)

Grayscale Bitcoin Trust Outperformed Indexes In First Half Of 2019 (#GotBitcoin?)

XRP Is The Worst Performing Major Crypto Of 2019 (GotBitcoin?)

Bitcoin Back Near $12K As BTC Shorters Lose $44 Million In One Morning (#GotBitcoin?)

As Deutsche Bank Axes 18K Jobs, Bitcoin Offers A ‘Plan ฿”: VanEck Exec (#GotBitcoin?)

Argentina Drives Global LocalBitcoins Volume To Highest Since November (#GotBitcoin?)

‘I Would Buy’ Bitcoin If Growth Continues — Investment Legend Mobius (#GotBitcoin?)

Lawmakers Push For New Bitcoin Rules (#GotBitcoin?)

Facebook’s Libra Is Bad For African Americans (#GotBitcoin?)

Crypto Firm Charity Announces Alliance To Support Feminine Health (#GotBitcoin?)

Canadian Startup Wants To Upgrade Millions Of ATMs To Sell Bitcoin (#GotBitcoin?)

Trump Says US ‘Should Match’ China’s Money Printing Game (#GotBitcoin?)

Casa Launches Lightning Node Mobile App For Bitcoin Newbies (#GotBitcoin?)

Bitcoin Rally Fuels Market In Crypto Derivatives (#GotBitcoin?)

World’s First Zero-Fiat ‘Bitcoin Bond’ Now Available On Bloomberg Terminal (#GotBitcoin?)

Buying Bitcoin Has Been Profitable 98.2% Of The Days Since Creation (#GotBitcoin?)

Another Crypto Exchange Receives License For Crypto Futures

From ‘Ponzi’ To ‘We’re Working On It’ — BIS Chief Reverses Stance On Crypto (#GotBitcoin?)

These Are The Cities Googling ‘Bitcoin’ As Interest Hits 17-Month High (#GotBitcoin?)

Venezuelan Explains How Bitcoin Saves His Family (#GotBitcoin?)

Quantum Computing Vs. Blockchain: Impact On Cryptography

This Fund Is Riding Bitcoin To Top (#GotBitcoin?)

Bitcoin’s Surge Leaves Smaller Digital Currencies In The Dust (#GotBitcoin?)

Bitcoin Exchange Hits $1 Trillion In Trading Volume (#GotBitcoin?)

Bitcoin Breaks $200 Billion Market Cap For The First Time In 17 Months (#GotBitcoin?)

You Can Now Make State Tax Payments In Bitcoin (#GotBitcoin?)

Religious Organizations Make Ideal Places To Mine Bitcoin (#GotBitcoin?)

Goldman Sacs And JP Morgan Chase Finally Concede To Crypto-Currencies (#GotBitcoin?)

Bitcoin Heading For Fifth Month Of Gains Despite Price Correction (#GotBitcoin?)

Breez Reveals Lightning-Powered Bitcoin Payments App For IPhone (#GotBitcoin?)

Big Four Auditing Firm PwC Releases Cryptocurrency Auditing Software (#GotBitcoin?)

Amazon-Owned Twitch Quietly Brings Back Bitcoin Payments (#GotBitcoin?)

JPMorgan Will Pilot ‘JPM Coin’ Stablecoin By End Of 2019: Report (#GotBitcoin?)

Is There A Big Short In Bitcoin? (#GotBitcoin?)

Coinbase Hit With Outage As Bitcoin Price Drops $1.8K In 15 Minutes

Samourai Wallet Releases Privacy-Enhancing CoinJoin Feature (#GotBitcoin?)

There Are Now More Than 5,000 Bitcoin ATMs Around The World (#GotBitcoin?)

You Can Now Get Bitcoin Rewards When Booking At Hotels.Com (#GotBitcoin?)

North America’s Largest Solar Bitcoin Mining Farm Coming To California (#GotBitcoin?)

Bitcoin On Track For Best Second Quarter Price Gain On Record (#GotBitcoin?)

Bitcoin Hash Rate Climbs To New Record High Boosting Network Security (#GotBitcoin?)

Bitcoin Exceeds 1Million Active Addresses While Coinbase Custodies $1.3B In Assets

Why Bitcoin’s Price Suddenly Surged Back $5K (#GotBitcoin?)

Bitcoin’s Lightning Comes To Apple Smartwatches With New App (#GotBitcoin?)

E-Trade To Offer Crypto Trading (#GotBitcoin)

US Rapper Lil Pump Starts Accepting Bitcoin Via Lightning Network On Merchandise Store (#GotBitcoin?)

Bitfinex Used Tether Reserves To Mask Missing $850 Million, Probe Finds (#GotBitcoin?)

21-Year-Old Jailed For 10 Years After Stealing $7.5M In Crypto By Hacking Cell Phones (#GotBitcoin?)

You Can Now Shop With Bitcoin On Amazon Using Lightning (#GotBitcoin?)

Afghanistan, Tunisia To Issue Sovereign Bonds In Bitcoin, Bright Future Ahead (#GotBitcoin?)

Crypto Faithful Say Blockchain Can Remake Securities Market Machinery (#GotBitcoin?)

Disney In Talks To Acquire The Owner Of Crypto Exchanges Bitstamp And Korbit (#GotBitcoin?)

Crypto Exchange Gemini Rolls Out Native Wallet Support For SegWit Bitcoin Addresses (#GotBitcoin?)

Binance Delists Bitcoin SV, CEO Calls Craig Wright A ‘Fraud’ (#GotBitcoin?)

Bitcoin Outperforms Nasdaq 100, S&P 500, Grows Whopping 37% In 2019 (#GotBitcoin?)

Bitcoin Passes A Milestone 400 Million Transactions (#GotBitcoin?)

Future Returns: Why Investors May Want To Consider Bitcoin Now (#GotBitcoin?)

Next Bitcoin Core Release To Finally Connect Hardware Wallets To Full Nodes (#GotBitcoin?)

Major Crypto-Currency Exchanges Use Lloyd’s Of London, A Registered Insurance Broker (#GotBitcoin?)

How Bitcoin Can Prevent Fraud And Chargebacks (#GotBitcoin?)

Why Bitcoin’s Price Suddenly Surged Back $5K (#GotBitcoin?)

Zebpay Becomes First Exchange To Add Lightning Payments For All Users (#GotBitcoin?)

Coinbase’s New Customer Incentive: Interest Payments, With A Crypto Twist (#GotBitcoin?)

The Best Bitcoin Debit (Cashback) Cards Of 2019 (#GotBitcoin?)

Real Estate Brokerages Now Accepting Bitcoin (#GotBitcoin?)

Ernst & Young Introduces Tax Tool For Reporting Cryptocurrencies (#GotBitcoin?)

How Will Bitcoin Behave During A Recession? (#GotBitcoin?)

Investors Run Out of Options As Bitcoin, Stocks, Bonds, Oil Cave To Recession Fears (#GotBitcoin?)

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