Deep Dive: The stock market is in trouble. That’s because the bond market is ‘very close to a crash.’

by | Oct 15, 2022 | Stock Market

Don’t assume the worst is over, says investor Larry McDonald. There’s talk of a policy pivot by the Federal Reserve as interest rates rise quickly and stocks keep falling. Both may continue. McDonald, founder of The Bear Traps Report and author of “A Colossal Failure of Common Sense,” which described the 2008 failure of Lehman Brothers, expects more turmoil in the bond market, in part, because “there is $50 trillion more in world debt today than there was in 2018.” And that will hurt equities.

The bond market dwarfs the stock market — both have fallen this year, although the rise in interest rates has been worse for bond investors because of the inverse relationship between rates (yields) and bond prices. About 600 institutional investors from 23 countries participate in chats on the Bear Traps site. During an interview, McDonald said the consensus among these money managers is “things are breaking,” and that the Federal Reserve will have to make a policy change fairly soon. Pointing to the bond-market turmoil in the U.K., McDonald said government bonds with 0.5% coupons that mature in 2061 were trading at 97 cents to the dollar in December, 58 cents in August and as low as 24 cents over recent weeks. When asked if institutional investors could simply hold on to those bonds to avoid booking losses, he said t …

Article Attribution | Read More at Article Source

Share This