At this writing, there are $13.3 trillion in negative rate bonds, making up almost 25% of the entire bond market and close to 40% of government bonds are negative. The test of negative rates that began with Sweden in 2009 has had little visible impact on the public because banks have generally, not passed negative rates on to most savers. In addition, since all bonds must be priced at market rates, the loss of principal is hidden by rising bond prices as interest rates fall.

Thanks to central bank “management”, we are riddled with the negative rate cancer. There is no cure and only one true financial shield, gold.

In fact, that is the justification Miles Kimball, co-author of the recent IMF Working Paper “Enabling Deep Negative Rates to Fight Recessions: A Guide”, uses to experiment with DEEP negative rates on deposits and cash, when the next crisis hits. Which is a direct attack on principal, designed to force the public to spend. Once cash is removed from the financial system, there will be no escape for the public.

Governments and central bankers are out of tools, so there is no choice but to attack principal. Consider this about government junk rated debt:

1. All Czech Republic euro bonds are trading at a negative yield
2. Poland’s 2029 note/debt is 16 basis points away from a negative yield
3. Serbia’s 10 year bonds pay less than 1.5%
4. Greece, who has a 40% default rate, pays the same amount on it’s 10 year debt, as the US pays on the 10 year treasury, and they just came back into the bond market last March.
5. Global yield curves are inverting, meaning shorter term debt pays more than longer term debt. A couple of examples
   1. In the US, overnight rates pay more than 10-year bonds
   2. In Argentina, 9-year bonds pay more than 100 year bonds

But this negative rate cancer has now spread to ‘High Yield’ bonds. First understand that a ‘High Yield’ bond is issued by risky borrowers that are likely to default on the bond/loan. Typically, they have to pay more to compensate the investor for taking that risk, which is why they are called ‘High Yield’. But, at this writing, there are fourteen highly indebted junk rated European corporations whose debt is trading at negative yields. Additionally, some highly leveraged US companies, like McDonald’s and Ball Corp, have euro denominated bonds that are trading at negative yields, meaning, if they do not default, you will get back less than you originally paid for them.

You know I always like to look at what the smartest guys are doing for themselves and high level executives (insiders) at McDonald’s and Ball Corp. are selling their stock at the same time they are taking on more leverage and debt. What does that tell you?

With all these stocks and bonds flooding the markets, you have to ask who is buying?

Institutional investors, in other words, those managing money for you: Pension funds, Insurers, Financial Institutions, are buying the stock that the insiders are selling and Passive Mutual or Target Funds and ETFs tied to global bond markets and buying those negative rate bonds. In other words, millions of people attempting to save for retirement.

I suggest you look to see if negative rate bonds are being held in YOUR retirement plan. What can you do about it?

The same thing the smart money is doing. Buy gold.

Links:

1. https://www.imf.org/en/Publications/WP/Issues/2019/04/29/Enabling-Deep-Negative-Rates-A-Guide-46598
2. https://www.bis.org/publ/arpdf/ar2018e5.pdf
3. NA

1. https://www.wsj.com/articles/oxymoron-alert-some-high-yield-bonds-go-negative-11563096601

https://www.bloomberg.com/graphics/2019-negative-yield-debt/

5. https://www.bloomberg.com/news/articles/2019-07-08/negative-yields-conquer-emerging-europe-after-ecb-s-dovish-turn

https://www.bloomberg.com/news/articles/2019-07-09/century-bonds-have-a-breakout-moment-as-jpmorgan-pictet-load-up?cmpid=BBD071019_MKT&utm_medium=email&utm_source=newsletter&utm_term=190710&utm_campaign=markets

https://www.marketwatch.com/story/if-the-stock-market-is-irrational-what-do-you-call-the-bond-market-2019-07-19

6. https://wolfstreet.com/2019/07/09/negative-yielding-junk-bonds-have-arrived-in-europe/

https://www.bloomberg.com/news/articles/2019-07-09/sub-zero-yields-start-taking-hold-in-europe-s-junk-bond-market

https://www.treasuryandrisk.com/2019/07/24/u-s-companies-euro-bonds-with-negative-yields/

https://www.nasdaq.com/symbol/mcd/insider-trades

https://www.nasdaq.com/symbol/bll/insider-trades

7. https://www.bloomberg.com/graphics/2019-negative-yield-debt/

https://www.barrons.com/articles/jim-grant-negative-interest-rates-51558719657

https://www.nasdaq.com/symbol/bll/ownership-summary

8. https://www.bloomberg.com/opinion/articles/2019-06-26/gold-gets-a-tailwind-from-jump-in-negative-yielding-bonds