Month: March 2022

By Garfield Reynolds, Bloomberg Markets live Chief Correspondent for Rates

The Federal Reserve and other central banks took ownership of the bond markets during the pandemic with zero-bound rates. Now they are busy breaking them.

The bleak reality for investors is that bonds are at risk of turning into just another speculative asset, and a particularly focused area for speculation — what the Fed will do next is becoming almost the only question that matters, rather than one of the key questions.

The fallout from all these central bank maneuverings is degrading the haven qualities of fixed-income securities and threatens to turn yield curves into mere noise, rather than reliable signals about real-world economics.

The meltdown across global bonds is truly epic and unprecedented. Whether you look at Bloomberg’s global aggregate bond index, which started in 1990, or at the U.S. gauge that goes back to 1976, the drops of more than 6% seen year-to-date exceed any full-year declines. Each index is well-nigh certain to suffer consecutive yearly losses for the first time on record. The picture is about the same if you just look at government debt securities.

 
It could be easy to shrug this off as a fairly modest slide — other asset classes like equities, commodities and junk bonds regularly switch between bull and bear markets. But that’s not the way bonds were supposed to work because as they decline, the increased yields they start offering would normally start to draw money back in to bonds — especially because their role as benchmarks for risk-free rates means those rising yields start to place an increased burden on other assets.

An underappreciated dynamic in this year’s rout is the impact of central banks rushing to end quantitative easing and raise rates all at once as they realized they had stuck with pandemic-era stimulus for far too long. With the war in Ukraine underscoring expectations inflation will be the opposite of transitory, the previous taper playbook has been turned on its head.

Treasuries for example have been hammered as the removal of the steady flow of demand from the Fed enhances the impact of triggers such as convexity, investment-grade corporate sales, and Japanese investors squaring positions into the March 31 end of the fiscal year. (The BOJ is playing its own special role in damaging global markets as it pulls out all the stops to stay easy in a tightening world).

Yields are spiking higher during and after the taper, unlike last decade when yields retreated on expectations that an end to QE would slow the economy.

Matters are only likely to get worse as the Fed pursues quantitative tightening, with more declines and more volatility looming. Heaven help investors and economists trying to read what bond pricing means once QT starts and further distorts already strained curves.

The new normal for bonds is that they become more and more about simply guessing at central bank moves, and less about real-world fundamentals because investors will turn elsewhere to express such views — precious metals, various equity sectors, commodity baskets and so on.

Now that Moscow has doubled down on its demands that its European “partners” pay for its oil and gas in rubles instead of euros (which, as the bloc already demonstrated, can be easily confiscated in the name of “sanctions”), the German government is digging in its heels as the payment dispute threatens to precipitate problematic energy shortages in Europe’s largest economy.

The FT reported Wednesday that German Energy Minister Robert Habeck has activated the “early warning phase” of Germany’s gas emergency law, which was adopted to help ration supplies in the face of a severe shortage.

Too bad President Biden and the US will take years to reroute their promised LNG exports (and even so, they will likely never be able to fully compensate for Russian supplies).

Habeck issued the warning for fear that Moscow would swiftly move to cut off energy exports to one of its biggest customers in Europe over its refusal to make payment in rubles, which Habeck has insisted would be a violation of the two sides’ contract.

The move was triggered by German concern that Russia might cut supplies to the country and its neighbors because they are rebuffing Moscow’s efforts to force payment for gas imports in rubles.

After demanding last week that “hostile states” pay for its gas and oil in rubles (although it hinted that gold and cryptocurrency might also be considered), Moscow said it wouldn’t share its resources “for free” after the G-7 aggressively repudiated the Russians’ request. 

“We will definitely not supply oil and gas for free, that’s for sure. It’s hardly possible and reasonable to engage in charity in our situation,” Putin spokesman Dmitry Peskov said earlier this week.

As Germany scrambles to address a looming shortfall in energy supplies, analysts are warning that the government’s refusal to meet Moscow’s request for payment in rubles could create a “substantial” risk.

During the early warning phase – the first of three stages in Germany’s emergency response – a crisis team from the economics ministry, the regulator and the private sector will monitor imports and storage.

If supplies fall short, and less draconian attempts to lower consumption do not work, the government would cut off certain parts of German industry from the grid and give preferential treatment to households.

Volker Wieland, a professor of economics at Frankfurt University and a member of the German council of economic advisers, on Wednesday warned that a halt in Russian energy supplies would create a “substantial” risk of a recession and bring Europe’s largest economy “close to double-digit rates of inflation.”

Already, the German economy is facing its most brutal inflation in decades, with an annual headline inflation rate that could top 6% by the end of the year. The dire situation has already prompted the government to subsidize citizens’ energy costs with a round of energy stimmies.

Further restrictions on Russian supply could have even more dire consequences.

As a reminder, Russia dominates gas and oil exports to the EU:

Source: FT

Of course, if Berlin doesn’t play ball, gas won’t be the only commodity in short supply. The Kremlin said on Wednesday that demanding ruble payments for exports of oil, grain, fertilizers, coal, metals and other key commodities in addition to natural gas was a good idea, Russia’s top lawmaker Vyacheslav Volodin said on Wednesday, per Reuters.

“If you want gas, find rubles,” Volodin, the speaker of the lower house of parliament, said in a post on Telegram.

Peskov, meanwhile, said the dollar’s global reserve currency was already diminishing, and that pricing Russia’s biggest exports in rubles would be “in our interests and the interests of our partners.”

Now, if the leaders of Europe don’t play ball, then President Biden’s prediction of devastating food shortages could become a self-fulfilling prophecy.

Authored by Paul Joseph Watson via Summit News,

A government minister has told Germans they should cope with soaring energy costs by merely turning off the heating and wearing warmer sweaters.

Yes, really.

Baden-Württemberg Minister of Agriculture and Consumer Protection Peter Hauk made the comments as he called for a complete ban on German imports of Russian gas and oil as a result of the war in Ukraine.

That would devastate Germany’s economy and lead to even higher energy prices given the country’s dependence on Russia.

Before the war began, Germany imported 55 per cent of its gas from Russia along with a third of its oil and 45 per cent of its coal.

With Germans already struggling to heat their homes, Hauk glibly told them to wear more clothing instead.

“You can withstand 15 degrees [Celsius] in winter in a sweater. No one dies of it. But people are dying elsewhere,” he said.

The German Tenants’ Association responded strongly to the comments, asserting that elderly people are at risk of death if they don’t keep their homes sufficiently warm.

“With a ministerial salary or a presidential pension, you can afford exploding energy costs and do not need to freeze yourself,” Stuttgart state chairman Rolf Gassmann said.

Hauk’s remarks will bolster accusations that technocrats are exploiting global crises to reduce the living standards of first world populations in line with the World Economic Forum’s ‘Great Reset’ agenda.

Globalists are desperately trying to introduce carbon tax systems that would make energy even more unaffordable for people already struggling financially as a result of the pandemic.

*  *  *

Brand new merch now available! Get it at https://www.pjwshop.com/

In the age of mass Silicon Valley censorship It is crucial that we stay in touch. I need you to sign up for my free newsletter here. Support my sponsor – Turbo Force – a supercharged boost of clean energy without the comedown. Get early access, exclusive content and behinds the scenes stuff by following me on Locals.

We recently warned that Europe is about to be hit with an unprecedented shortage of diesel, as gas stations run dry of the vital liquid (according to the CEOs of the world’s largest independent energy merchants), but little did we know that the first actual crisis would hit in America’s own back yard and not just anywhere but the state synonymous with commodity extraction: on Monday, airport officials in Austin, Texas warned of an impending jet-fuel shortage amid a surge in travel to and from the state’s capital city.

Austin-Bergstrom International Airport, which is ranked No. 29 in the U.S. based on 2021 passenger traffic, issued a fuel-shortage alert on Monday and urged airlines to carry extra fuel or send in more supplies via tankers, said Sam Haynes, a spokesperson.

With 282 flights scheduled for today & 1,600 + more passengers flying out before 8 a.m. than we typically see, it’s a busy day at AUS.

While operations have returned to normal, we continue to ask passengers to arrive a minimum of 2 hours in advance now through early April. pic.twitter.com/5olg6JTaR0

— Austin-Bergstrom International Airport (AUS) (@AUStinAirport) March 28, 2022

“The on-hand supply just isn’t enough to keep up with demand,” she said. “This is all a result of the tremendous growth we’ve seen” in the Austin area.

Haynes also said that the airport’s two fuel-storage tanks haven’t been expanded or augmented since it opened in 1999, and as a result, the Austin facility typically holds just one to two days of supply, less than half the five-to-seven days of fuel stockpiled by most airports of similar size, she said.

“We’re aware of fuel quantity issues at Austin-Bergstrom International Airport and we are working to mitigate potential operational issues by tankering fuel on some inbound flights,” said Dan Landson, a spokesman for Southwest Airlines Inc., the airport’s largest carrier by passenger load.

The silver lining is that so far, no flights have been canceled or diverted as a result of the fuel situation. Meanwhile, the demand for jet fuel is soaring with the airport seeing more than 8,000 passengers before 8 a.m. on both Sunday and Monday, which is about 25% above normal, as citizens of bicoastal liberal utopias just can’t wait to get the hell out.

The crush of passengers was so dramatic that security lines stretched outside and onto sidewalks, and long waits meant many missed their flights, the Austin American-Statesman newspaper reported.

For now, the imminent fuel shortage hasn’t translated into actual groundings: according to Bloonberg, American Airlines’ flight schedule has not been affected by the shortage, a spokesperson said. The supply squeeze wasn’t expected to impact Air France-KLM’s inaugural non-stop flight to Amsterdam scheduled for Monday afternoon, Haynes said.

We expect that to change; we also expect that very soon many other airports around the country will suffer similar shortages as the US is hit with the worst supply chain crisis in modern history.

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Retaliatory visa measures are being developed in Russia for citizens from “unfriendly” nations, Foreign Minister Sergei Lavrov said on March 28 as another top Kremlin official said U.S. President Joe Biden’s recent comments are a “cause for concern.”

During public comments, Lavrov didn’t provide details about the countries that would be targeted, although he did single out the United States and its allies.

“Additionally, a draft presidential decree is currently being developed on retaliatory visa measures in connection with the unfriendly actions of a number of foreign states,” Lavrov said during a meeting in Moscow, according to state-run media. “This act will introduce a number of restrictions on entry to the territory of Russia.”

Some measures are being developed to “respond to unfriendly actions by the United States and its satellites,” Lavrov added.

It comes as the Kremlin issued more statements following Biden’s speech last week in Poland, when he said Russian President Vladimir Putin “cannot stay in power.”

“These statements are certainly causing concern,” Kremlin spokesman Dmitry Peskov told reporters on March 28.

“We will continue to closely monitor the statements of the U.S. president. We carefully note them and will continue to do so.”

Over the past weekend, White House officials, including Secretary of State Antony Blinken, disputed claims that Biden was suggesting a regime change in Russia.

Russia and Ukraine said their delegations arrived in Turkey on March 28 for a new round of talks to begin on March 29. Ukrainian officials have recently suggested that Russia could be more willing to compromise having encountered stiff Ukrainian resistance and heavy Russian losses.

Russia’s military also signaled last week that it would concentrate on expanding territory held by separatists in eastern Ukraine, a month after having committed the bulk of its huge invasion force to a failed assault on Kyiv.

Ukraine President Volodymyr Zelenskyy, meanwhile, told journalists on March 28 that he would be willing to meet with Putin in person but suggested the meeting occur outside of Russia.

“We must come to an agreement with the president of the Russian Federation, and in order to reach an agreement, he needs to get out of there on his own feet … and come to meet me,” he said, according to an Associated Press translation of his comments.

But Ukraine said it saw no sign that Russia had given up a plan to surround the capital, where the mayor, former heavyweight boxer Vitali Klitschko, said 100 people had been killed, including four children, and 82 multi-story buildings had been destroyed. It wasn’t possible to verify the figures.

Neither side has budged over Russia’s territorial demands, including Crimea, which Moscow seized and annexed in 2014, and eastern territories known as the Donbas, which Moscow demands that Kyiv cede to separatists.

Reuters contributed to this report.