America s Bond Market Blues

How Scary Is the Bond Market?

And the environment might be things like the stock market or the bond market or the commodities market.

Indeed, the bond market channel is unlikely to boost growth.

Bond market crashes have actually been relatively rare and mild.

Traditionally, sovereign risk has been concentrated in emerging market economies.

Surprisingly, the bond market still seems almost oblivious to this risk.

Virtually every emerging market country has experienced recurrent sovereign debt problems.

I have been thinking about the bond market for a long time.

Where the market price of bond is less than its face value (par value), the bond is selling at a discount.

Bond market vigilantes already have taken aim at Greece, Spain, Portugal, the United Kingdom, Ireland, and Iceland, pushing government bond yields higher.

But it probably will have little to do with a bond market crash.

In the private bond market In euro, issuance volumes have quadrupled since 1998.

The effectiveness of interventions in the sovereign bond market that is, their ability to lower the borrowing costs of households and firms further will also rest on the state of the banking sector.

Noting the increasing voluntary use of collective action clauses in sovereign bond contracts by both developing and developed countries,

Thus, the recent problems faced by Greece are only the tip of a sovereign debt iceberg in many advanced economies (and a smaller number of emerging markets). Bond market vigilantes already have taken aim at Greece, Spain, Portugal, the United Kingdom, Ireland, and Iceland, pushing government bond yields higher.

If investors do decide that government bond yields are no longer worth the investment, sovereign borrowers options may be limited.

If bond markets, for example, are to work well, an orderly way of resolving cases of sovereign insolvency must be found.

And, to the extent that there is even an informal price target associated with the ECB s commitment to purchase bonds, foreign outflows, at least from the sovereign bond market, are automatically replaced, in full, with ECB cash.

Encouraging participation by foreign investors is a quick way to jump start local bond market activity.

My name is Bond, Jamal Bond.

The falling yields at the Italian government s last bond auctions in 2011 suggested a significant reduction in the perceived sovereign default risk.

Let's say they bond here, they bond here, and they bond here.

The authorities are taking steps to correct their mistakes, especially with the decision to form a banking union and the outright monetary transactions program, which would allow unlimited intervention by the European Central Bank in the sovereign bond market.

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Investors subsequent efforts to price in the risk of a eurozone breakup not the volume of sovereign debt caused bond yields to spike.

Creating a euro zone government bond market would bring immediate benefits, in addition to correcting a structural deficiency.

In this context, interest rates would remain capped, mitigating the risk of a disorderly bond market sell off.

Creates a bond, creates a bond of respect.

Bond Street? To Bond Street for a ring.

The result will be chain reactions similar to those seen in Europe s sovereign debt crisis, with a vicious circle of sovereign and bank debt leading to credit rating downgrades and a sharp increase in bond yields.

Of course, the discipline of the market is not perfect the bond market does not see implicit future liabilities (like promised pension payments) to any great degree.

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Draw Bond