currently there is widespread bond b**rishness. usually that is a precursor to a bond rally.
there is no realistic model for US GDP that would allow us to pay off our debt now, as the interest will now overtake any such counterthrust.
whether interest overtakes or not depends on what happens to rates. T-bills yield around 16bps. at those levels, US can afford a ton more issuance.
if we do encounter the unimaginable scenario you mentioned earlier where 10yr goes to 50bps (a post which received tons of reco's and not one dissenting reply, a sure sign of consensus), US can issue debt all day long.
i am of the view that future rates are not predictable (or at least not correctly predictable -gn-). therefore whether US "defaults" is not predictable. in any case default means "not pay", and surely the US can always "pay" its USD-denominated debts. so we are only talking about your personal, ad hoc definition of "default"--issuing more unfunded paper to pay off old paper. what major economy do you think will NOT be doing that in the years ahead? especially when you consider demographics going forward.
i would say the more relevant question is when (if) FCBs stop accepting these terms. this is unknowable based on numerous failed predictions made heretofore. i still believe most Western observers do not grok Asian mercantilists and their CBs.
i am not a bond bull. to me, it looks like the risk is not worth the reward (e.g., put all your money in 10yrs and if yields drop to 50bps you make 30 percent, BFD, but if you're wrong you can suffer hugely [i should mention, though, that Hoisington made over 20% last yr in bonds, which outperformed SPX by like 6000 bps, so maybe relative performance is the thing to consider and in that sense 30 percentage points is nothing to sniff at]). but all the points the bond b**rs make are already well known and widely recognized, are in fact the consensus. so i am a little more cautious than you in calling the end to the bond bull market.
They've been in a bull market for 27+ years. Which just ended, btw.
it's a mug's game to call this the end. Grant tried it numerous times. we'll know it's over when it's over. i prefer to simply look at it from a risk/reward perspective as mentioned above. |
