A three-decade hidden bull market is at its terminal stage...
Something remarkable happened in the bond markets last Wednesday. Did you see it?
The jittery market actions indicated a genuine sense of fear; one that overtook a large majority of bond traders and investors.
They may be bracing themselves for the reversal of a hidden bull market (at least to most investors) that has been going on for the last three decades.
If what we think is going to happen materializes, the US government will lose a primary source of its income.
The dollar’s value will sink. And so too will its global status. All your dollar-denominated assets will also be impacted.
Without its main source of income, the US government will have a difficult time paying its bills.
This shows us just how powerful China has become--the ace up its sleeve targeting one of the US’s critical economic vulnerabilities.
Officials in Beijing had decided to stop buying US Treasuries. This news comes at a time when most global debt markets began selling off. Immediately, US bond yields rose; some reaching their highest point since March of last year.
China is the largest holder of global foreign-exchange reserves. And upon a rigorous assessment, they’ve decided that US government bonds no longer have any value to them.
This may have something to do with the trade tensions that have been going on between the US and China.
But again, this doesn’t matter. The fact is that China holds the upper advantage for our debt-driven economy.
Chinese officials are also keeping this matter under wraps, as their State Administration of Foreign Exchange refuses to give comment and even forbid officials to discuss the matter with the public.
According to Michael Leister of Commerzbank AG, “With markets already dealing with supply indigestion, headlines regarding potentially lower Chinese demand for Treasuries are renewing bearish dynamics.” This along with the fading of QE measures on a global scale may trigger long-term upward pressure on yields.
Officials in Beijing haven’t been forthcoming as to why trade tensions or other geopolitical developments might have spurred them to cut back on treasury bond purchases. But if you look at the bigger picture—the trend toward global de-dollarization, the massive increase in gold purchases, and plans to introduce the Petroyuan as a competitor to the US Petrodollar—this announcement is part of larger grand strategy to get ahead of its number one opponent (the US).
Bond market veteran, Bill Gross, states in a posting on Twitter: “Bond bear market confirmed.” Why such a response? The US is looking to increase its supply of debt. During the Treasury Department’s quarterly announcement last November, it mentioned that borrowing is expected to increase as the Fed unwinds its balance sheet.
Besides, Chinese overweight exposure to US bonds, one that has been accumulating for several years, has become a point negative concern. Now they are looking to diversify at a time when the US is looking to borrow even more.
Will the markets take this in stride?
Or will the dollar plunge?
There are only a handful of solutions to successfully brace yourself for the impact. See our article on why gold is still the world’s foremost currency. Or check out our article on Gold and Bitcoin.