Bell Ringing Again

I’ve mentioned the GE Capital Spin-off and Debt reduction as a major harbinger of a massive turn in the markets. Now, we have another major tell, the sudden surge in German Bund interest rates.

Source( FT, May 10, 2105)

Some have argues that the move is due to net new supply in May :

However, if that were the case, USTs would have been screaming up since the end of QE.  I do expect German bund rates to come down again, however it is clear that the markets are getting volatile under the covers. The pressure cooker is vibrating. When it blows, the debt crisis will be epic.

We have so many risks lining up to explode at once: China recession/depression, Greece, Euro implosion, Japan implosion, war in Ukraine or the Middle East. All of these events have been good for US assets and explains why US rates have not gone up since the end of QE. Some of these potential crisis should materalize in the next year. Most likely a Greek default will force the oligarchs to cram down the loss onto Greek depositors as they did in Cyrus. In turn this will cause depositors in other Euro countries to flee their banks and this could cause a major crisis sometime after the Greek default. This seems like the most likely scenario, but not the only one.


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