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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (11940)	4/14/2004 1:43:04 PM
From: Real Man	Read Replies (2) \| Respond to of 110194

And it did! USD is down some 30% from the peak. I'm not saying this should not continue - I believe you are absolutely correct, and real rates are very negative, probably -10% to -20%, if you account for real inflation, not BLS inflation. But I believe nobody uses inflation data in pricing derivatives, just yields, although I may be incorrect on that one. Bonds are not a good investment, but borrowing at 1% and investing at 5% is money for nothing. Leveraging up on it was what the banks and hedge funds were doing. Now, if LT yields RISE, they risk to lose a lot more than they play with. I'm therefore expecting LT rates to blow up at some point. Investors are exiting bonds, but they have been overrun by carry traders, who trade with NV of 150 Trillion $ (much larger than the total bond market). I expect these carry traders to hurt really bad, and soon. We'll see a lot of financial bankruptcies, if not the system failure (most likely).