FED, rock and a hard place., page-180

Yes, Milli, Operation Twist was brilliant. Lock in the silly low rates for 30 years. The problem, of course, is that not all bonds are 30 years. The FED itself has some hundreds of billions of bonds (at least) that mature between now and 2017. They said (in the past) they will not rebuy them. They will begin to unwind by letting them mature.

But I will think that plan is out the window. Currently the FED has this 'secret' QE where they rebuy the maturities. But they said they will stop doing that from around now (they said that in the past)

So, (sarcastic here) I guess the US govt will not need to issue many bonds anymore and the FED will not need to buy any and the market will happily buy them.

To be honest, if we end up with a big deflation fear, the bonds the FED holds will rocket in value (with their 2 and 3% rates). And the FED will give its balance sheet a nice boost if they make interest rates negative. Their assets suddenly shoot up in value. Heck, they may even be able to unload them at a huge profit to the market.

But this is all assuming the market has a stomach for US bonds. And who knows. If the US is the last land standing, then you want their bonds.

But as our Skol likes to say he can find bubbles, given the bonds in the market are at historic 200 year highs, and if interest rates go negative, they become even more valuable... then maybe there is a bubble there to be aware of (beware of).

regarding maturing bonds: (from Zerohedge)

"The US in the fourth quarter of 2014, issuing over $1 trillion in new debt simply to pay back old debt that was coming due.

This is how the bond market becomes a bubble. Between 2000 and today, the global bond market has nearly TRIPLED in size. Today, it’s north of $100 trillion in size. And it’s backstopping over $555 trillion in derivatives trades."

I consider the bonds a bubble on PRICE. I guess others consider it a bubble on volume. In any case, the question is, what if the interest rates rise and all the bonds crash in price, when there is a $100 Trillion of the buggers floating around.

Dare I guess: the retails investors missing out on the QE stock bubble, may be frightened into the bond market, then when the FEDs of the world have off loaded, THEN they can raise interest rates, putting the huge losses on the populace.

Heck, I can see many scenarios where the FED can manipulate rates and QE such that they can shift all the risk to others. But the 'others' will need to play or be forced to play. But thinking it through, if the FED kills the bonds (no matter who is holding them), they will set off a great deflation, for sure. Hmmmm, ZIRP seems the only answer. That one poster who said he asked his Nana at McDonalds about future interest rates was correct... well Nana was correct. No rate rises for a long time, and at most a one and done... sometime in the distant future.