posted on Jun, 5 2015 @ 02:29 PM
Among the most popular bond investments Europe is the German 10-year bond. The ten year yield went from .54% to .72% in a single day. That is quite a
massive loss for investors in the German 10-year bond. Think those bond holdings of yours are as good as gold, a safe haven against the stock market?
No, think again. Portugal, Italy, and Spain are all thought to be potential default cases at some point in the next few years in addition to Greece.
Each one of them has spiraling debt. And, as their bond rates rise, their chance of default rises, making them even more likely to default in a
classic debt spiral.
I have been thinking that the next economic bust would not be for a couple more years, but my prediction might be a bit too optimistic. After Greece
announced a likely default on its debts, bond rates across Europe skyrocketed. The whole downhill run from May is projected to have wiped out
450B($US) in market value from European bond holders. Of course that would be almost only government bonds, though corporate bonds rates have also
been considered to be at excessively low rates in the long-term as well, and so those bonds are in bad shape in Europe as well. In case anyone
doesn't know, bonds are simply loans given to an organization that are expected to be paid back in one large lump sum payment at the end of the loan
period, while the interest rate is typically paid over the entire course of the loan.
The US is at a sensitive inflection point by many measures, where it is is likely begin a full-scale rally or crash in a couple of months. If EU bond
market troubles spread to the United States, that would be a sure-fire trigger for an economic crash in the US, which in turn would likely spread
around the world. The sub-prime loan collapse was the cause of the last US crash. Now, this European bond crash risks triggering another crash in the
US. The Greece problem has now spread, but how far will it go?