Overnight lending squeezed by bond vigilantes

Both presidential candidate Hillary Clinton and the markets feel like crap Monday morning.

While the Democratic nominee alleges she has her third different ailment in the last week, the global stock and bond markets can’t  keep anything down and wretched more than 2% losses in Asia and Europe overnight.

Bond yields worldwide have exploded as the sell off continues, with even the 10-year German bund now yielding a positive return.

The why is not that the markets think Yellen & Co. at the Federal Reserve may raise interest rates. No the credit markets have tighten overnight lending already.

The overnight lenders have put the squeeze on creditors, which has a devastating effect on banks such as HSBC, Deutsche Bank and a host of Italian and French banks needing easy credit to continue operating.

The fear of “pulling the punch bowl,” as ex-Fed head Alan Greenspan said, has spooked the bond market to such an extent that this slide in all assets may not be so temporary.

So, does Yellen & Co. come out today with a less hawkish statement on a September 21 rate rise?

If she does send a dovish message to the markets, she will be seen as capitulating to the bond vigilantes and lose what little capital she has with the markets.

I believe Mario Draghi and his European Central Bank will have to blink first by saying it will ramp up bond purchases in the banks to forestall a EU banking crisis predicated on the banks referenced above from cratering.

Be forewarned, I wrote about this happening early last week.

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2 thoughts on “Overnight lending squeezed by bond vigilantes

  1. Pingback: There’s scary things in the overnight lending district | GRAY'S ECONOMY

  2. Pingback: Deutsche’s stock rocked by fed’s $14B fine | GRAY'S ECONOMY

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