Chicago’s Bond Penalty Plunges as Investors Hunt for Yields – Bloomberg

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Tom Paine's Ghost
4 years ago

You’d have thought that the Puerto Rico bankruptcy would have injected some fear of moral hazard into the bond market…….but it didn’t. So now we wait for Connecticut or New Jersey or a large city to run out of money and credit. Then, and only then, will the entire state and municipal bond market freeze up and bond rates skyrocket to reflect their true risk. With credit cards cut off, Chicago, Illinois and countless other states and cities will fail to make payroll. Ant only then will you see any real financial reform in Illinois, Chicago and Cook County. And… Read more »

Astonished
4 years ago

I agree, but when Rip Van Winkle awakens and bondholders (including pensioners) realize that they hold nothing but empty promises(-to-pay), the US Congress will be among those frozen out of the bond market. All roads lead to a bond Armageddon, what I call The Great Bondfire.

s and p 500
4 years ago

Bloomberg has an article about the guy who runs Apollo private equity. Wow, just wow. He won’t have any trouble getting funding for more deals from pension funds who need the yields.

https://www.bloomberg.com/news/features/2020-01-16/nobody-makes-money-like-apollo-s-ruthless-founder-leon-black?srnd=premium

Juicy Smollier
4 years ago

Mr. Glennon, if they just do what they have to in order to keep “selling these bond so well”, why wouldn’t they just keep that up? It seems like we are all making up reasons why it can’t continue, but it does. And on and on. So the question is, what causes the bond market to finally vaporize? Who on earth would buy Chicago debt without a restructuring? I keep asking these same questions, no one seems to have an answer.

riverbender
4 years ago

Some year ago Savings and Loans Associations, think of “Its a Wonderful life,” were having great difficultly attracting savings being they were not allowed, by regulation, to pay market interest rates on FDIC insured investment accounts. Many of the savings and loans started issuing notes that were not FDIC insured because they were basically bonds issued by the financial institution. Investors purchased them because rates were falling and investors, when renewing their CDs, would choose the bonds because of the enhanced yield and, “as many said,” what could possibly go wrong? They had invested funds with the institutions for years… Read more »

Astonished
4 years ago

Searching for yield. This is akin to, when there’s a shortage of real estate with nice views, paying top dollar for parcels on the north face of Mount St. Helens in 1979. Don’t worry about the tremors underfoot, or the smoking crater above…they just add ambiance. Seriously, who is paying “top dollar” for risky, high-yield bonds? It’s not Joe & Jane Citizen, it’s fund managers who are gambling with OPM (Other People’s Money) at the roulette wheel. As long as the market for those bonds holds up, the fund managers win. If the market tops and craters, the fund managers… Read more »

debtsor
4 years ago
Reply to  Mark Glennon

There’s been too much money chasing too few assets for a long time now. Every obscure investment from collateralized Vietnamese motorbike loans, to the purchase of both Jimmy Johns and Portillo’s by private equity, along with recently bankrupted milk processers Dean & Borden, to microloan loans in the indian sub-continent, to mining the ocean-subfloor, it’s all been vetted, analyzed, invested in and profits taken. There’s quite literally hundreds, if not thousands, of other deep pocketed entities gambling with leverage to invest in every possible asset left on planet earth.

Astonished
4 years ago
Reply to  debtsor

I say again (with feeling, this time, chuckling): This is all (ALL!) about credit availability. Bond prices bottomed in their last bear market (1981 was the low), and from then on, prices rose (duh, it’s a bull market and that’s the definition.) Bonds are by definition an INTANGIBLE asset. If you tried to “stack” bonds in a column, how high would it reach? Trick question, they’re all electronic…and Have. No. Physical. Form. (!!!!!!) The market/price behavior of intangible assets doesn’t comport with Econ 101 supply-demand models. As prices rise, quantity demanded RISES (as long as it’s a bull market.) This… Read more »

debtsor
4 years ago
Reply to  Astonished

The alternative to debt is hard currency, and the relative lack of hard currency prevented any real, substantial economic growth for millennia, and when there was too much currency, there was crippling inflation, so that common people returned to bartering. Government and religious prohibitions on interest further curtailed economic growth until the Italians in the middle ages figured out double entry accounting books and bills of credit (or whatever they were called), and suddenly, a cash flow short merchant no longer needed to carry silver and gold bullion on his ship to buy wool in England to ship to Genoa,… Read more »

Astonished
4 years ago
Reply to  debtsor

I believe you are wrong; the alternative to fiat money is asset-backed money and getting bankers (and their government charters) OUT of the credit-creation business. Antal Fekete’s “Real Bills” doctrine is promising, in that the only people/entities allowed to create credit are PRODUCERS, who create credit temporarily so that their goods can move to the next phase in the structure of production (or to retail sale.) In such a system, there is NO perpetual credit creation, no pyramiding of collateral values. Run-away credit creation is impossible, as credit creation is joined at the hip to real production, and real production… Read more »

debtsor
4 years ago
Reply to  Astonished

You’re right that there is a third currency, asset backed money, not just hard currency or fiat. I was wrong about that.

Astonished
4 years ago
Reply to  Mark Glennon

Woah! “Junior position?” Sounds suspiciously like the “third tranche” of the CDO’s that were at the forefront of the 2007-2009 roller-coaster ride.

You have to hand it to the salesman who can sell the Brooklyn Bridge over and over again to G.I.’s in World War Two, using just a picture postcard. Reminds me of Gary Larson’s Far Side cartoon, depicting “Ralph Harrison, King of the Salespersons” as he waves goodbye from the rear deck of a boat steaming away from Eskimos standing on shore next to their igloos and their brand new refrigerators.

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