Courtesy of Mish.
The economic data does not support a rate hike. Is the Fed is really worried about something else?
How about an overheating junk bond market? An equity bubble? Room to cut later? Or does the Fed really think the economy is strong?
Regardless, a massive selloff in bonds in Japan and a two-day five-sigma event in German bunds may be the start of a significant rout.
Let’s investigate this through the eyes of various bond market dislocations.
I don’t know what the Fed is thinking. Their convoluted comments, all over the map is a clue they do not know what they are thinking either!
— Mike Shedlock (@MishGEA) September 9, 2016
Sizzling Hot
Bloomberg reports Red-Hot Market Spurs Risky Bonds That Allow Interest Delays.
The bond market is getting so hot that it’s fueling a surge in debt deals allowing companies to defer interest payments.
Just a week in, September is already on track to become the busiest month for so-called payment-in-kind toggle notes that let companies pay coupons with more debt, according to data compiled by Bloomberg. Ardagh Group SA, a Luxembourg-headquartered packaging company, sold $1.72 billion of the securities. German auto components maker Schaeffler AG is poised to sell 3.59 billion euros ($4.05 billion) of the notes on Thursday, more than 1 billion euros than initially planned, which would make it the largest PIK issue ever, Bloomberg data show.
PIK debt is often issued at the holding company level, which makes the notes riskier because they are one step removed from the operating company. Schaeffler is selling its notes through its holding company.
Extreme Sentiment Marks Tops
Buying bonds that allow interest to be paid back with still more bonds is crazy. Yet, there you have it. Can it get crazier? I don’t know.
